The Pain In Spain 2012

Welcome to 2012. If you live and work in Mallorca, the good news is that you will be paying more income tax. A nice way to bring in the new year.

The announcement by the Spanish Government that income tax will rise is just one of a package of austerity measures. It shouldn't have come as a surprise, except that prior to the election Mariano Rajoy had implied that income tax wouldn't go up. Promises or statements can swiftly be reneged upon and can easily be justified by putting the blame on a situation left behind by the Zapatero administration that was worse than had been expected. It is a wholly disingenuous justification. Voters were idiots if they had really believed taxes wouldn't go up.

The government, in increasing income tax rather than IVA (VAT), argues that this will be less damaging to economic recovery. Who are they trying to kid? Fiscal measures, be they direct or indirect taxation increases, are harmful. At least with keeping direct taxation at the same level, there is theoretically more disposable income. The government's argument is fatuous.

A sensible measure that the government has taken in respect of IVA is not to reduce it for tourism businesses. Again, it is something of a broken promise, but it was a promise that was flawed. Tax receipts from IVA rose in 2011, thanks to a one per cent rise to 8% for tourism businesses. With prospects for tourism in 2012 bright and northern Africa still in turmoil, an IVA reduction would have been unnecessary and a mistake.

The government is faced with an enormous challenge. Of course it is, and it is being realistic in terms of the degree to which it can get the deficit down, but its measures will do little to stimulate recovery. IVA will be reduced for new-property purchase, which may help, but with credit in such short supply, it is mere tinkering.

Spain is pretty much back in recession and Mallorca and the Balearics are as well, despite what the regional government might think. The banks don't think the same and have said so. Tourism, for Mallorca, will be the saviour as it was in 2011, but the island's prospects are otherwise as bleak as they are for the country as a whole.

There must have been consternation in the corridors of Balearics political power when the news came through that central government intended not to extend financing to the islands (along with three other regions) as had been promised. Whether President Bauzá was on the phone to Rajoy demanding to know what was going on we don't know, but the central finance ministry issued a further announcement saying that there had been an error and that no agreement as to a finance cut (elimination in fact) had been arrived at. Again, who are they trying to kid? You don't just make a mistake when it comes to this sort of an announcement, or if you do, it doesn't say much for how joined up central government is.

The swiftness with which the mistake was admitted does suggest that some stern words were had. For Bauzá, so intimately linked to Rajoy, it was news he could have done without, as pressure starts to mount on him and dissent from within his own party increases, the result in part of the closeness both personally and in philosophy between Bauzá and Rajoy. The withdrawal of central finance would also, in all likelihood, have put the kibosh on certain projects in Mallorca; bad PR again for Bauzá who would find it extremely difficult to criticise his PP masters, having so slavishly been prepared to follow them.

Away from the budget, another announcement by central government has a distinct Mallorcan flavour, and that is the appointment of Isabel Borrego as tourism secretary of state. It had been expected that a Mallorcan would be appointed, even if Miquel Ramis had been the front-runner, but is Borrego's appointment as positive as Ramis' might have been? Ramis does have direct experience of tourism, where Borrego doesn't. The government says that this doesn't matter as Borrego's predecessor, Joan Mesquida, also didn't have direct experience. It's a weak argument to say the least.

Various organisations have been quick to support Borrego's appointment, but then they always are; it is known as being diplomatic. The most positive thing that is being said about Borrego is that her background in property and in law is an advantage. An advantage? What for exactly? Or for whom? One guess. Hotels. The worry is that Borrego will be inward-looking in addressing more arcane aspects of tourism, such as the application of various laws as they apply to the industry and to developments, rather than outward-looking in terms of marketing.

So, here we are at the start of 2012. It is going to be a rocky ride this year and unfortunately it hasn't started very encouragingly.


Any comments to andrew@thealcudiaguide.com please.