Sponsored By TUI: Spanish tax policy

Who are the real powers in the lands? Prime Minister Rajoy and his government nationally, President Bauzá and his regional government in the Balearics, other presidents and other governments in other Spanish regions? The answer is none of these. Not if TUI wields its influence.

When TUI or the hotels speak, governments sit up and take note. When the European Union and the IMF urge the Spanish Government to bump up the rate of IVA (VAT), they neglect the fact that this is not a decision for the government. This, at any rate, is how one might style the opposition of TUI and the tourism sector to an increase in IVA that might see the current reduced rate for the tourism sector scrapped. If the government buckles under pressure from tour operators based in other countries, then the game is pretty much up; its impotence is revealed and its role is diminished. Welcome to the Kingdom of Spain, sponsored by TUI.

There is a sour deliciousness about a German company wishing to direct Spanish financial policy when the German Government is doing the same thing, albeit that the policies differ. Spain is now reduced to an argument between German commerce and German politics. What a strange world we live in.

TUI is threatening (and to say threat is not being hyperbolic) to reduce its operations in Spain if the rate of IVA goes up to 18%, the current general rate of IVA. Companies do from time to time issue certain "hints" to all sorts of governments if they don't do what they want them to. The British Government was once warned of the dire consequences of not joining the euro by Japanese car manufacturers. Mostly everyone seems to now have forgotten about this, as there were no dire consequences.

But then the Spanish tourism industry isn't quite like the British motor industry. It is the motor of the economy, as governments nationally and regionally keep reminding us, which the motor industry in Britain wasn't. Woe betide, therefore, any government that wants to get the economy motoring but which ignores the protests of a company so firmly in the driving-seat as TUI is.

TUI does have a point. Of course it does. And its point, though it isn't necessarily stating this, is that an economies, including that of the Balearics, with varying levels of dependence upon tourism cannot be revived if starved of the consumer's euro because of a rise in tax, and a whopping one at that in the case of the tourist rate going up from 8% to 18%.

It isn't just TUI which has a point. The Spanish hostelry federation has put the job losses that would result at 130,000 (9% of all those employed), the fall in consumption at  up to 8%, and the loss to gross value added of 6,000 million euros. These losses would come on top of accumulated losses of 20% in the wider hostelry sector since economic crisis took hold.

The impact at the bar or restaurant coalface is not difficult to figure out. Whereas the previous one-point rise from 7% had little effect and could be swallowed by businesses if they wished to, a 10% rise couldn't be without harming even more the bottom line. For a dish costing five euros, for example, the price would increase by 50 cents. This may not sound a lot but multiply it by demand for meals out and then it starts to become so. Reduced spending by tourists is already a fact. Spending would be reduced further. And in Catalonia, where the tourist tax is due to be introduced, they must be having kittens at the thought of an IVA rise.

When you look at potential losses and when you hear the threats from the likes of TUI, you would have to think that the Spanish Government would need its head examining were it to go ahead. However, is it morally right that one sector, tourism, should be given special consideration when most of the rest of the economy isn't? The consumer has experienced increases in prices as it is and may well yet be faced with a rise in the general rate of IVA, thus compounding the effects of rising prices (petrol, gas, electricity, food etc.).

Whether morally right or not, the economic rightness of increasing IVA is being subject to ever more questioning. And so it should be. Austerity economics are being given a hard time because their chances of bringing about recovery or growth are extremely limited, certainly in the short to medium term. But austerity economics are being imposed on Spain, so indirect taxation bears the brunt, as does therefore the consumer. The question, where tourism is concerned, is who has the greater say. The austerity politicians of Europe or Europe's leading tour operator.


Any comments to andrew@thealcudiaguide.com please.