Friday, March 25, 2016

The Missing Millions Of The Eco-Tax

The deed is done, the die is cast. The tourist tax is a reality and it will commence on 1 July. Perhaps they should declare it a fiesta, if the joy displayed in parliament by the victors is any guidance. At least they didn't do the conga this time, as they had when the law of symbols was repealed.

If one is looking for an upside, the fact that the tax will be given a fair crack of the whip this time might be one. The old eco-tax was in existence for a mere eighteen months, of which the final few months were a period when it was condemned awaiting abolition. Though arguments still rage regarding its impact, the time during which it was in existence was too short to come to real conclusions. In 2002 tourism slumped, in 2003 the slump was reversed: the evidence suggested a score draw.

The assumption will be that if there is a change of government in 2019 that finds the PP back in power, the tourist tax will be shown the door in the same way that the eco-tax was ushered out by Jaume Matas's PP government in 2003. This time round there are for sure three whole seasons (2017-2019) plus a truncated one this year with which to assess the impact (damage or success; take your pick).

In revenue terms, had the old tax not been abandoned the Balearics would have coined in some 1,000 million euros of revenue. This was the claim of PSOE deputy Bel Oliver earlier this week. Its abandonment had been a "mistake", she argued. One that has now been reversed. Stated cumulatively, the revenue certainly sounds great; rather greater than the 50 to 80 million per annum which, in terms of overall regional budgeting, isn't huge. Oliver's is a seductive if somewhat simplistic conclusion. The impact of the old tax - in a longitudinal sense - can only be assessed hypothetically.

There is a question that emerges from her statement. In 2007, PSOE returned to government in coalition with the old Unió Mallorquina (UM) and the PSM Mallorcan socialists (who form the bulk of the current-day Més amalgam). Why was the eco-tax not revived then? Two reasons. One was that PSOE was still reeling from the apparent failure of the eco-tax. The other was that Maria Munar of the UM had made clear prior to the 2007 election that there should be no talk of going back to the tax. For all the opprobrium heaped on her since, Munar did speak some sense. She had hoped for a consensual revision of the model of tourism to include all stakeholders: the tax would have prevented this. That this model failed to emerge had at least something to do with the corruption scandals that engulfed the UM, which controlled the tourism ministry.

1,000 million euros collected over a fifteen-year period compares unfavourably with the 2,500 million euros generated in a single year. This is the revenue that tourism provides for the government, and the former president of the Mallorca Hoteliers Federation, Aurelio Vázquez, was reminding everyone of the fact earlier this week. Vázquez, Iberostar's CEO for Europe, the Middle East and Africa, said that government decisions should be prioritised in favour of increasing competitiveness to the tourism sector. The tax will not do this. It is a "mistake".

Vázquez argued that investment and employment will be undermined in the medium to long-term as a result of the tax. Whether the tax survives until the long-term will depend on the 2019 election. But though Vázquez may be correct in his assessment, investors seem not to currently be deterred by the tax, if the massive investment being lined up by Starwood is anything to go by. It is more the case that bureaucratic obstacles to development are threatening investment.

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