Thursday, April 25, 2013

Death, Taxes And Holidaymaking

If you are inclined to pay any attention to statistics, you may have noticed that, in the first three months of this year, tourism in Catalonia increased to the extent that it represented a quarter of Spain's total tourism. Does Catalonia having been a mere 5% behind the Canaries tell a story over and above its statistical one? It may do. The tourist tax, which was implemented last autumn, appears not to have had a negative effect.

Prime Minister Rajoy is to agree a new set of economic measures on Friday. He has said that there will be no further rises in either income tax or IVA (VAT), though there has been speculation that the lower, tourist rate of IVA might go up. Rajoy has said it won't, so if it does, then he will have been, and not for the first time, economical with the economic truth.

If the lower rate does escape the government's attention on Friday, it might not do in the future. The 11% difference between the standard and lower rate allows some manoeuvre-room for a deficit-busting government that somehow still manages not to reduce the deficit. The minister of contradiction (his own), Luis de Guindos, told parliament yesterday that the economy will be getting better sooner than had been thought. As he had told an American newspaper the other day that the economy will contract this year more than had been thought, then it is hard, as it always is, to know what Sr. de Guindos really does think. If he thinks at all.

But then maybe he is thinking. If we put the good old tourist IVA rate up again, perhaps his predictions of growth (minimal) in 2014 won't come to pass. Best maybe that IVA be left alone, as relentlessly upping the indirect-taxation ante ain't the best remedy for reversing a contracting economy. Yet, despite this apparent truism, in Catalonia, a tourist tax, coming on top of the IVA rise in September, does not seem to have made much difference, other than to in fact increase tourism. How very odd.

A recent report for "Hosteltur" magazine picked up on an anxiety expressed by the World Travel and Tourism Council about the inclination for governments, not just Spain's or the regional one in the Balearics, to raise taxes that apply to the tourism sector or to invent new ones. The report used the adjective "estrujado". Its verb, "estrujar", has multiple meanings - to crush, to squeeze, to bleed or to drain. Any of these would be appropriate, though the bleed one is perhaps the most appropriate. It is the life-force-removal consequence of tourism being "ordeñado" - from the verb "ordeñar", to milk. Tourism is the milch cow, its udders to be squeezed and squeezed by demands for tax and more tax.

Or so it appears. The tourism industry chattering classes have raised the demon of taxes to a level that they have assumed potentially greater damage than that which might in the past have been caused by aircraft falling out of the sky, civil unrest or natural disaster. Taxes are the new act of God. Or are they?

IVA and Catalonia's tourist tax are not the only taxes which have an impact on the tourism industry. They have been coming thick and fast in recent times. Property taxes have risen, town halls have found new ways to raise tax, the Balearic Government has come up with its laughably monikered "green taxes", the AENA airports authority has increased its charges, governments (the British and the German ones, for example) have upped air duties. One tax after another; each one catches tourism in its net and every tourism organisation, be it representative of hotels, car hire, attractions, restaurants or whatever, cries competitive-loss foul.

A while ago, I suggested that the Catalonians may find that their tourist tax proves not to be price-sensitive and so therefore not price-elastic. Evidence from the first quarter of this year might indicate that I was right, but intuitively you feel that the cumulative effect of all the milking, squeezing and bleeding will be to stretch the elastic to snapping point; the tourism industry would find itself caught with its pants down and its crown jewels exposed to a witheringly icy tax breeze.

Perhaps governments calculate that there is no snapping point and believe that there are not two but three certainties - death, taxes and a determination to take holidays. And maybe they are right. Even if they are, there will still be a squeeze. It won't necessarily be one on airlines or hotels, but one on the rest of the tourism economy. There's now a fourth certainty. Holidaymakers' budgets.

Any comments to please.

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