Taxing The Tourist

Might the Balearics revive the eco-tax or create some similar tourist tax? The government has hitherto discounted the notion, but it may well be looking across the sea to the mainland and to Catalonia where a tax is to be introduced in 2012.

The Catalonian tax envisages payments for a maximum of ten nights of a stay, and it will apply to hotels, apartments, cruise ships, camping areas and rural properties - pretty much everything, in other words. Five-star hotels will attract a rate of three euros a night, four-stars two euros a night and the rest one euro. Children under 12 will be exempt. It is estimated that the tax will raise in the region of 100 million euros and the money will be used primarily for tourism promotion.

The Balearics eco-tax was introduced in 2003 by the then socialist government of President Antich and was abandoned a year later by the Partido Popular administration. The tax attracted significant amounts of bad publicity and warnings of the harm it would cause to the local tourism industry. It was unpopular because it was unilateral, i.e. other regions of Spain didn't have such a tax.

For all that the tax was not well thought-out (it was essentially discriminatory in that the hotels were the channel of collection), the principle behind it had merit. In purely moral terms, it is not unreasonable, for example, to expect tourists to contribute to the provision of resources and services, while the application of a tourism tax is a well-enough established practice in different parts of the world.

A counter argument against the tax was that tourists already contributed, albeit indirectly, through their spend that supported local businesses which in turn paid taxes. This was also reasonable and, especially among tourist "veterans" who had been coming to Mallorca for years, there was some resentment at being asked to pay when they had been contributing for so long.

Since 2003 though, one thing has changed and that is the increase in all-inclusives. It might seem unfair to penalise tourists who don't stay in an all-inclusive, but the level of spend in resorts with high concentrations of all-inclusive has unquestionably been affected, with the result that the contribution to the local economy has gone down.

Another thing that has changed is that competition from other destinations has become steadily more intense. A concern that a local tax in 2003 might have put the Balearics at a disadvantage with other parts of Spain would now be one of worries about boosting tourism to other countries. However, and as events have shown, this competition can come with a caveat, one of potential disruption.

The competition argument isn't the strongest, and it isn't one that seems to bother the Catalonian government. Instead, faced with a budget cut to tourism of one-third in 2012, it is looking to the tax to enable it to strengthen its marketing clout in beating off the competition.

A problem for Catalonia, however, is that a tax, were it widely known to be earmarked for promotion, would not necessarily play well with tourists. It would be reasonable for visitors to believe that this was something that they should not have to pay for. Though the Balearics eco-tax was mishandled, if the PR were done effectively, tourists would be more likely to accept paying for the environment or for good works. Promotion, a matter very much for a regional government and its tourism industry and it alone, is different.

More than all this though, there is an issue with the drip-drip effect of added costs to the tourist. To a local tax can be added charges such as those imposed by the British and German governments on air travel. The cumulative effect of the drip-drip would not mean tourists opting for a competitor destination (especially as air duties are universal and indeed higher for longer distances), but it would most likely eat more into the spend once at the destination. On the basis of what Catalonia intends to introduce, a family of four with two teenagers at a three-star hotel would pay 40 euros more. This might not seem a lot, but cumulatively, for the tourism population as a whole, it may well result in spend decreasing even more. What is gained through a direct contribution would be lost from an indirect contribution.

On balance, however, the Balearic Government might be advised to re-visit the concept of a tourism tax, if only on moral grounds.


Any comments to andrew@thealcudiaguide.com please.