Saturday, March 09, 2013

To Tourist Tax Or Not To Tourist Tax

The Catalonians are going to be coining in 45 million euros from their tourist tax this year. This is a lower amount than the 100 million that had been anticipated when the tax was first planned, but the difference can probably be explained by the downward adjustments that were subsequently made to the rates. I say "probably", but it will take until the end of this year to assess just how successful, or not, the tax is. Even if it rakes in a hefty amount, it will surely be deemed a failure if Catalonia were to suffer anything like a significant drop in tourism volume.

I don't anticipate that it will suffer a drop and nor does the director of the Catalonian tourism agency, if his forecasts for growth in, for example, the German market are anything to go by (the announcement of the estimated revenue from the tax was made at the Berlin travel fair).

The Catalonian tax is bound to be looked upon with interest by other regions of Spain. Catalonia is the only region with such a tax at present, but it may well not be the last, and though the regional government in the Balearics has ruled out there being a tourist tax in the islands, the possibility that the government might do a U-turn cannot be dismissed.

The memory of the Balearics eco-tax is one reason why the regional government would tread warily. Apart from the fact that it would be politically awkward for a Partido Popular-led government to introduce a tourist tax, when the previous tourist eco-tax was a PSOE invention and was subsequently scrapped by a PP government, there is all the baggage that remains from the eco-tax. It was unpopular for all sorts of reasons and with all sorts of "stakeholders", not least the hotels who were expected to collect it.

There are myths that have grown up around the eco-tax, one of them being that it caused a fall in tourism. In actual fact, the figures for total tourism arrivals to the Balearics in 2002 (the year in which the tax was implemented) and in 2003 show that tourism increased, not hugely but by around 300,000. Academic studies of the eco-tax have since suggested that it had relatively little impact and that what sluggishness there may have been at that time was due more to the stagnant nature of the German economy than to the tax.

The chances of a tourist tax in the Balearics being revisited have to be put in the context of not only the experience of the eco-tax but also the present day. Since 2002/2003, various tax changes have affected tourists - tax rises in their own countries and air duties, for example. So the tourist is being hit harder and harder by tax. This hasn't, however, stopped the Catalonians from introducing their tourist tax, and this despite rises in IVA (VAT) in Spain as a whole.

The Balearics, though, have their own mini eco-taxes, the one that most directly affects tourists being the tax on car hire. Criticised by tour operators and ABTA as well as by local business associations, it is a discriminatory tax, which was a key criticism of the old tourist eco-tax The government dresses it up as a green tax, when it is nothing of the sort. It is a tax which in fact limits the government's room for manoeuvre. A tourist tax, implemented correctly, as the Catalonian one is being and as the previous eco-tax in the Balearics wasn't, is not discriminatory and would have potentially far greater revenue-raising potential than the car-hire tax. But having settled on discriminatory taxes, the government would now find it difficult to backtrack and scrap these taxes in favour of a broader tourist tax. If Catalonia's tax proves to be a success, a Balearics move to establish a similar tax would then smack of copycatism and opportunism.

The mini eco-taxes are also for general tax-raising purposes in order to reduce the regional government's deficit. They are, therefore, unlike the Catalonian tourist tax which is more progressive in the sense of being used for developing tourism and so growing the economy - it is to be used, and this has been established in law, for tourism marketing purposes alone. The Balearics taxes will neither develop tourism nor help to grow the economy, despite the bizarre assertion of the regional government that higher taxes are good for the economy.

Of course, any tax or tax rise can be considered detrimental to growth, but there are taxes which are less price-sensitive and so less price-elastic than others. And the Catalonians may discover that its tourist tax is one of them.

Any comments to please.

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