New report finds that domestic visitors rate it Australia’s most creative city, but international visitors put Sydney on top.

Melbourne has been declared Australia’s cultural capital, with a new report ranking the city the top cultural destination in the country, third in the Asia Pacific, and 12th in the world for arts and culture.

Commissioned by Creative Victoria, the Boston Consulting Group’s report, entitled Melbourne as a Global Cultural Destination, surveys Melbourne’s cultural offerings to determine how it compares on a national and international scale. The city’s mix of historical and contemporary cultural venues, number of year-round events and strong independent arts sector was found to appeal both to creative practitioners and cultural tourists.

Outside of visiting family and friends, arts and culture are Melbourne’s biggest and most lucrative tourism drivers, bringing in more than $1 billion annually, with regional Victoria and New South Wales the biggest source of cultural tourists. On average, these visitors stay 25 percent longer and spend 20 percent more per trip than other tourists. The biggest attractions for both domestic and international tourists are Melbourne Museum, the National Gallery of Victoria (the most attended public gallery in the country), and the city’s street art.

However, the...