From Sackcloth To Ashes: IVA

Let's say that you are prime minister of a basket-case European economy. You need to hold the begging bowl out in order that you can capture the flood of coins when wealthy institutions pull the lever on the fruit machine and hit the jackpot. Clonk, clonk, clonk. Loadsamoney. Ta very much. Your thanks and gratitude are moderated, however, by the knowledge that the jackpot comes with a caveat or two. It is one that makes you the victim of a bastardised principle of the caveat emptor. Into your empty bowl flow the coins of salvation (albeit only temporarily probably) but you've got something into the bargain that makes the salvation rather less of a bargain for the people you are allegedly governing. You have to raise taxes. Because you are told you have to.

The institutions want their pound of flesh in return for their largesse. They demand evidence that the coins won't just be frittered away, all put on a 2-1 favourite at Haydock which pulls up lame. They demand that you wear the sackcloth of austerity for the world to jeer at. You are willing to suffer this humiliation because you know, because the institutions must presumably have told you, that the raising of taxes will bring forth riches that will enable you to swap your sackcloth for an Armani suit.

Well, this is the theory. Unfortunately, it's not a very good theory, as it is a theory which rather ignores the practice. As prime minister of this basket-case economy (let's call it Portugal), you go along with the exigencies of the institutions, and you raise the level of value added tax. You manage to keep a rate of 6% for your hotels but your bars and restaurants must now apply 23%. You proudly announce that changes to this tax will indeed bring forth riches. An increase of revenues to the tune of 11.6%. You discover, to your horror and with egg firmly splattered on face, that you can't even now afford the sackcloth. Astonishingly, your revenues haven't met the 11.6% level, they haven't gone up at all. In fact, they have gone down by 1.1%. To make matters worse, although you have enjoyed an 11% increase in the number of tourists (thanks to not penalising the hotels), your tax rise has resulted in the loss of some 200,000 jobs in the general hostelry sector. See, told you it wasn't a very good theory.

Spain's tax rise of 2% in the tourism sector (hotels as well as bars and restaurants) means the rate differs to Portugal's but the result could be similar. Exceltur, the alliance for touristic excellence, believes that it will be: the loss of 2,000 million euros and 18,700 jobs. These losses, assuming they are accurate, would represent some achievement by the Spanish Government, even by its miserably low standards.

Why is the government messing around with IVA therefore? The simple answer is because it has been told that it has to; it's the pound of flesh, and one that leaves you asking whether any of the external bodies insisting on a rise in IVA have any more of an idea what they are doing than the Spanish Government, which hasn't got any.

You might think that I am just being rather unkind to poor old Mr. Rajoy and that Uncle Alfredo, had he become prime minister, wouldn't have done any better or anything different. Quite possibly not, but Rubalcaba hadn't promised before the election to cut the tourist rate of IVA and hadn't promised not to put income tax up. So, what did Rajoy do at the start of the year? Put income tax up, arguing this was a measure that would be less damaging to the economy than putting IVA up. Sorry, what was that? Less damaging than putting IVA up? Yes, I thought that was what he said, too. And Uncle Alfredo may have had someone in charge of economic affairs who didn't come out with pearls of wisdom similar to those of Luis de Guindos (Rajoy's man who seems to not have even managed to acquire his 101 Basic Economics). Shall I remind you of what he said in April? "Next year (2013) will be the time to increase the tax burden (IVA) on consumption, once the economy starts to grow again." Yes, he really did say this, a sentence in which everything was wrong.

Of course, one can argue, by way of a defence, that Rajoy and his unmerry men didn't appreciate the scale of the problem and the consequent demands to be placed upon them by Frau Merkel. One could argue this, but I would argue that they had a pretty shrewd idea, not that it prevented them coming out with the nonsense they did and continue to come out with. I give in evidence Rajoy's recent comparison with France and its rate of VAT, one that took no account of average salaries being double those of Spain. You don't whack IVA up in a country where people are paid a pittance as it is and expect to raise revenues and in a country where the avoidance of paying IVA is a national pastime.


Any comments to andrew@thealcudiaguide.com please.

Fatal Attractions: IVA, weather and seasonality

You will know that the British can blame the wrong sort of snow for interruptions to public transport services. Did you also know that the Mallorcans can blame the wrong sort of heat for not getting punters through the turnstiles at attractions? If it's too hot and too sunny, then waterparks win out over other attractions that are indoors or mainly under cover. Well, blow me, I would never have thought this. And nor would I ever have thought that during a Mallorcan summer the weather might be hot and sunny. 

The Asociación Mallorquina de Actividades Turísticas (AMAT) was formed in 2001 and it comprises nineteen businesses engaged in different types of attraction, outdoors and indoors, daytime and evening. It is an association whose voice was rarely raised loudly until recently. This raising in volume coincided with the appointment of Palma Aquarium's Antonio González as its president. In April this year, as an example, the association launched an attack on the harm that all-inclusives were having on the island's attractions. It has now met with President Bauzá and has been telling the media about the problems that attractions face, one of which is the weather.

Hot and sunny weather is a lame reason to give for the fact that waterparks might perform better than other attractions. It would be a good reason if hot and sunny weather was not common, but it is. Surely, the association has noticed this, but then among its members there is one business that appears to be absent which might be able to make the point: Aspro Ocio, which, with the exception of Hidropark, runs the island's waterparks as well as Marineland.

There are other reasons why AMAT has wanted to have a word with the president: the small number of hotels open in winter and the reduced number of flights; the rise in IVA (VAT) from September; and promotion towards a youth market, as opposed to a family market, which has lower spending power and is interested only in night-time entertainment.

This last aspect is curious. Firstly, because Mallorca is still considered to be and is promoted as a family destination far more so than as a youth one. Secondly, because one of AMAT's members is Cursach. And what are their attractions? Well, Magalluf's BCM for a kick off.

AMAT's meeting with President Bauzá and the resultant attention in the media comes close on the heels of the announcement by the travel agencies' association, AVIBA, that sales of excursions are down. The two are not coincidental, as both associations represent parts of the tourism industry which are none too impressed by the government's new tourism law or by the IVA increase.

But as I pointed out in a recent article about AVIBA, its travel agencies are only part of the attractions' sales distribution channel, while the main reasons why the sale of excursions is down are very simple - lower tourist spend and economic crisis. The complaints that AMAT has, except the strange one about the weather and the curious one to do with youth promotion, are not unreasonable, but they ignore the underlying reasons why some attractions, in particular the evening ones, are finding that the going has got tough.

One should, though, have sympathy for the attractions. Most of them are open all year and so provide a basis for off-season tourism. An attraction such as the Aquarium can't just shut down in winter. Its sharks, fish, turtles are on fixed, annual contracts; they are not temporary workers that can be laid off when winter comes. Rancho Grande has its resident horses and other animals, the Sóller train chugs away, Costa Nord and La Granja don't shift themselves to different locations in winter. They all require investment and cost, some of it enormous. They cannot get away with being closed in winter, unlike many of the hotel chains. And if the regional government doesn't appreciate this, then it should do. Who owns Costa Nord?

And where IVA is concerned, though the reduced rate that applies to the tourist sector will go up by two points to 10%, categories of business that have benefited from the lower rate have been changed. Consequently, clubs, such as BCM, as well as theatre and other "spectaculars" will be liable to the new higher rate of 21%. If the evening excursion hadn't already been affected (which it has been), it now definitely will be.

AMAT making its voice heard is a good thing, but it has been stung into making its voice heard because so many factors are conspiring against some of its members. It should have shouted a lot more loudly a lot earlier.


Any comments to andrew@thealcudiaguide.com please.

MALLORCA TODAY - Tourist sector to apply pressure over VAT rise

Though discussions have begun between hotels and tour operators as to the implementation of the 2% rise (to 10%) of the reduced rate of IVA (VAT) in the tourist sector, the hotels and other businesses in the sector are not accepting the rise without a fight. They are to meet Balearics president Bauzá and may also seek a meeting with Prime Minister Rajoy.

See more: Diario de Mallorca

MALLORCA TODAY - Consternation in the tourism sector at possible rise in IVA

A further rise in IVA (VAT) looks likely, given the recommendations of the European Union to the Spanish Government. But the tourism sector is greatly concerned that the current reduced rate of 8% for the sector (against 18% generally) could be scrapped and that it would end up with the same rate. Representations have been made to the national tourism minister Jose Manuel Soria, following rumours that such a rise might occur and might occur as early as next month. It might be remembered that the tourism sector had hoped for a further reduction in IVA when the Partido Popular government took office and that sources within the PP had indeed suggested this might happen.