Art For Banks' Sake: IVA and works of art

The Spanish Government is to reduce the rate of IVA (VAT) on transactions involving works of art from 21% to the 10% rate which commonly applies to certain tourism businesses. It is doing so, according to deputy prime minister Soraya Sáenz de Santamaría, in order to promote Spanish culture. She has said that a similar reduction is being considered for other cultural and artistic endeavour, such as for the film industry.

The government has been put under pressure to cut the tax rate and to bring it in line with rates of value add tax that are applied to works of art in other European countries. In December last year the Spanish Consortium of Art Galleries wrote to the finance minister Cristóbal Montoro and let him know what they thought of the government's attitude towards art; a lack of empathy and sensitivity, said the galleries' people.

The Spanish art world is in crisis - though there again, what area of activity isn't - and the market for Spanish art has contracted by a third in the past five years. This is one statistic that highlights problems in the art world, though it isn't as catastrophic as another one, revealed by the magazine "Artprice", which suggests that sales of works of art in Spain plummeted by almost two-thirds in 2013 alone.

This depression in the art market clearly has a negative impact on artists as well as on galleries, and where the former are concerned, young artists are being affected the most. The consequence of this is that, as with younger people in all manner of sectors, they may look and are looking to work in other countries, thus fuelling a cultural drain from Spain as much as a brain or brawn drain.

But behind the gloomy situation depicted by the galleries there lies much which, regardless of increases in prices because of tax, is stacked against a thriving art market in Spain. Some galleries may be collectors in their own right, but who actually stands to benefit most from a measure designed to breathe life into sales of works of art?

Spain has few serious private collectors of art and the number has been dwindling, the reason being that they are broke. This was an observation made almost three years ago, and the situation will not have altered since then. Indeed, it will have got worse. With the art world already well mired in crisis in 2011, the government, helpfully, went and upped the IVA rate, thus making the situation that much worse. But Spain does have some serious collectors. It's who they are which can be seen as part of the problem affecting the art world. They are banks and the State. It is they who would, because they are the most important collectors, stand to benefit the most from a cut in IVA.

If the government doesn't now extend the tax reduction to other areas of the arts and culture, ones with which it and its friends in the banking sector are not so intimately engaged, then it runs the risk of exposing itself to a charge of self-interest. As it is, selecting works of art as the first (and possibly only) beneficiary of a tax cut has to be looked upon with some cynicism. But more than a potential accusation of looking after their own, the dominance of the banks and the State in art collection has been singled out as a reason why Spanish art has been in the doldrums in any event. Artists are dissuaded from displaying originality and critical thinking, meaning that more innovative artists have indeed opted to work abroad where they might find more receptive and open-minded audiences. 

The governmental-banking nexus, the one that did so much to bring about general economic crisis, did at least attempt to boost the art world through developing new infrastructure in the form of arts centres. But as with other projects that involved regional administrations and banks in cahoots, some of these have floundered while others, not untypically, were too grand for their boots. Everyone seemed to want another Guggenheim but ended up with a gooey mess that couldn't be afforded. They were projects undertaken with little planning either for what they would be or why they were even being created.

Yet, governments and banks can't really be held responsible for what Adrian Searle, the art critic of "The Guardian", said about Spanish art three years. "Why is painting so lousy here?" It was a staggering comment that reflected awfully on the nation that produced Miró, Dali and Picasso and many others going further back in time, such as the greatest of them all, Francisco de Goya. Searle attributed this to inadequate art schools, the absence of an arts "movement" and to artist emigration.

The cut in IVA, while welcome, doesn't address a more deep-rooted problem for Spanish art, one that merely adjusting tax will not solve.

The Super-Reduced Rajoy: Señor 4%

Mariano may be denying everything as usual but, as with his likely bowing to the Sheldon Adelson billions and so the creation of the great smoking exception at Eurovegas, chances are that he will be forced to prostrate himself in front of the Rompuy-Merkel altar and will indeed need to "touch" IVA once more.

We're not touching anything, only exploring recommendations (these recommendations being a euphemism for demands). This was what Mariano had to say on Tuesday. There are no plans to amend the structure of value added tax, he remarked on Wednesday. By Thursday, however, and even if Rajoy was continuing to deny, the ministerial supremo for industry, energy and tourism, José Manuel Soria, was suggesting that there could well be some touching up in an IVA style. Recommendations? No, you'll do as we say.

It is not known whether Sheldon has been having a word other than the one regarding permission to smoke at Eurovegas in Mariano's shell-like, but if he has, it may well be along the lines of: "Y'all know this 21% Eva for casinos. I've heard tell y'all have lower rates of Eva. I'm not talking 10%. I'm talking 4%, boy. Super reeeeduced, baby."

The super-reducing Rajoy, growing smaller by the day, will probably have some bad news for anyone inclined to ask for special dispensation and slap a mere 4% IVA on a business operation. The troika, as part of its demands (sorry, recommendations) has been eyeing up the super-reduced rate of 4%. We know this because, although Mariano has been mute on the subject, JoSo at industry, energy and tourism has been singing like a canary; appropriately enough for a former president of the Canary Islands. The demands-recommendations have fingered the 4%, JoSo has admitted, and they are going to be touched up and will head upwards. To 10%. Or more. Possibly.

And to what types of service or product does the super-reduced rate currently apply? Basic food products are one, pharmaceutical products another. And then there is the written word. Books are 4%, so also are newspapers.

Soria has said that other countries apply higher rates for products which are super-reduced in Spain, and he's right, some countries do. But then some others, and the UK is one, apply a zero rate to newspapers. Osborne hasn't been so mad as to incur the eternal wrath of the "Mail" or "The Telegraph" by slapping VAT on them. Actually, it is not a case of not being mad. In a democracy where there is a premium on the value of information, no premium is attached to its price. Spain has attempted to keep this premium as low as possible, but it may just have lost the struggle.

The Newspaper Society in the UK is one organisation that has been to the fore in guaranteeing that the zero rate of VAT is maintained. It has also campaigned for zero rates in Europe. Were there to ever be harmonisation of VAT throughout the European Union, the zero rate on newspapers would, the Society hopes, be adopted.

The need for deficit reduction, however, cares little for the democratic principle of making information as cheap as possible. One can argue that, especially under difficult economic conditions, the exemptions of zero rating or super-reduction should be scrapped. If certain products and services have had to suffer rises, then why not others? (And it should be noted that, of the three rates of Spanish IVA, the super-reduced rate has been the only one that has not been raised.)

Yes, one can argue this, but there is a further principle of facilitating reading. It should also be noted that Spanish parents were hit with a significant rise in IVA for most school materials last September. Books might now become more expensive and so there is, therefore, an educational principle to be taken account of as well.

And while the cost of a newspaper or a book might rise because of an increase in IVA, the cost of production would also, in all likelihood, rise. Printing a newspaper attracts 4% IVA, while most other printing is charged at 21%. Inputs and outputs there are in value added tax, but they don't mean that prices don't rise or margins aren't eroded.

There is a perversity in European demands to increase the super-reduced rate. On the one hand, there is the Newspaper Society lobbying and gaining a general consensus about future zero rating and the European Union standing for freedom of information and the democratic principle of information. On the other hand, this same union might make Spain increase the price of democracy. This recommendation, at least, should be resisted. 


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Just Another Normal Return To School

It hardly seems any time since the youth of northern Mallorca were descending on Puerto Alcúdia for their end-of-school-year drinkathon in June. The long hot summer has all but passed the island's minors by. Return to school. "Vuelta al cole" is just around the corner.

The start of the school year is always given a great deal of prominence by the media. One is tempted to think that this is due to the fact that some schooling is actually taking place for once, though, as has been pointed out (not least by myself), total school hours in Spain aren't that far behind those in England where annual school hours are among the longest. And as a reflection of this media prominence, I, as has now become traditional, add to the column inches.

The return to school is fascinating because of its ritualistic nature and because of all the raft of statistics which are trotted out and political statements which accompany it. The greatest ritual is to declare on the day of the return to school that  it has been "normal", which has long led me to wonder what would constitute an abnormal return to school. Thanks to the regional government, education minister Rafael Bosch, stroppy parents, stroppy teachers, the endless language argument, Catalan bows, the Balearics Institute of Family Policy and the rise in IVA, we are about to find out.

By the start of this school year, or so said Herr Bosch at this time last year, there was meant to have been equality between Catalan and Castellano in Mallorca's educational system. This less than normal state of affairs, given that Catalan has dominated, is not about to come to pass. The wholesale introduction of "free selection" of language was watered down, the free selection where it was to be applied (infant and early primary) has been largely rejected by parents who continue to favour Catalan, and where there is to be equality, the teachers for the most part seem unsure how it is going to be implemented.

The language argument may seem to have dominated the educational agenda, but the teachers have other concerns which are just as controversial. They are expected to teach for longer, to teach larger classes and to be paid less. Which sounds wonderful for morale, as indeed does the fact that the government have been less than forthcoming in handing over money to schools since April this year.

It is the purely educational matter of class sizes and teaching resources that has inspired a campaign known as "Así no empieza mi hijo" promoted by the parents federation. It means that some parents are threatening to boycott the start of the school year by keeping their children at home, which does sound decidedly abnormal.

Into the fray on this particular abnormality has entered the Institute of Family Policy. It has denounced the parents to the ombudsman, claiming that fundamental rights of children will be violated by this boycott. Which is all quite interesting; an institute for family policy denouncing families, but such is how things work here. But then, the institute is an interesting body. A couple of years ago it was to the fore in seeking to ban topless sunbathing (rights and protection of children and all that). If you can be bothered to (and I have), some judicious Googling can reveal some just as interesting associations that this institute has. Let's simply say that it isn't exactly liberal.

I'm not sure what the institute has to say on the matter of IVA but there are plenty of families in Mallorca and in Spain that have been presented with a greatly increased bill for this school year. If you think a three per cent rise on the general rate is steep, then it is nothing compared with the 17% rise (4% to 21%) for school material (with the exception of books).

So, what have we got? Teachers hacked off, larger class sizes, schools not getting money they are owed, the language policy in disarray, parents being denounced, cost of sending children to school increasing. Enough for you? Well, there is also the matter of the Catalan bows hanging outside some schools to be made more of an issue of, a minor issue in truth when compared with the continuing poor performance of the state education sector in Mallorca, a problem which consultants McKinsey have been addressing by arguing in favour of the adoption of an English system (God help the local schools if this means performance league tables).

Yep, the return to school sounds as though it will be perfectly normal.


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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.


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VAT: Robin Hood and other problems

The extent of the application of the rise in IVA (VAT) has caught some people on the hop, and it is the recategorisation of businesses and services that will be liable for the general higher rate of 21% that has caught most out. From 1 September, there will be far fewer businesses than at present which will still benefit from the reduced rate (of 10%). In the tourism sector, these are basically hotels and restaurants. More or less everything else will be subject to 21% - clubs and discos, theme parks and attractions, sports facilities (including golf courses), health and beauty.

Value added tax is a highly discriminatory tax. It discriminates against the less well off and it also discriminates against or in favour of different business sectors. They wouldn't thank for me suggesting it, but why should bars and restaurants be treated differently to clubs? In a tourist sense, they are a part of the same thing, the so-called complementary offer, so why penalise one and not the other?

It would be argued that restaurants aren't solely for tourists (though neither are clubs) and that keeping IVA down enables the masses to feed themselves. Well yes, but then the masses can also feed themselves in a different way. By shopping. And IVA rates are either reduced or "super-reduced" for foodstuffs and beverages, with an exception for alcohol which attracts the higher rate, thus leading to the curious situation whereby a drink in a bar has a lower rate of IVA than the same drink that has been bought from a supermarket.

Business associations have not been slow in warning of the dire consequences of the IVA rise. From loss of general competitiveness to tourism taking a hit to hairdressing salons being cut and blown away, everyone is speaking with one voice, which even includes the government; its ministers admit that the IVA rise isn't going to be good for business, but then we all know that Spain's ministers don't have any say in how the economy is run.

Is the IVA rise going to have as harmful an impact on tourism as it is being suggested it might? In one respect, it is unlikely to. Tourism to Mallorca is remarkably durable, even if the level of tourism spend has been less durable. Putting up prices because of higher IVA rates will make this spend lower, but it doesn't follow that tourism itself would fall.

There is some validity in the argument that countries (Portugal, Greece) which have reduced VAT in the tourist sector will benefit at the expense of Mallorca and Spain, but they can benefit only by so much, the benefit being determined by supply. There again, do tourists make decisions based on rates of value added tax in different countries? They do make them based on price, but the price decision is more one of the cost of the package or the flight and the accommodation rather than how much it might cost to enter an attraction. Though tourists are way more savvy in their budgeting (and necessarily so) than was the case in the good old days of worthless pesetas and a bevvy costing a mere ten of these worthless coins, there is also a psychology of purchasing by the unit; hence, x number of meals out or y number of excursions (y probably equalling one nowadays) for which the decision is of course price sensitive but not exclusively so.

Tourism will be affected (and one might point out that golf could really lose out if the greens fees, already considered high in Mallorca, were to go up markedly) but not as much as is feared. The real killer isn't for tourism, it is for the domestic market. The constant rise in the cost of living is reaching a point, if it hasn't already, where it cannot be sustained without dire consequences of a different nature to those predicted for businesses. It isn't only IVA. If you pay 20 euros to put petrol into your car, you now get one euro's worth less, ever since the tax to pay for the health service was introduced in the Balearics. This is just one example.

Summer and the tourism season give false impressions. The season will finish soon enough. Then what? Unemployment going up, benefits down, IVA effects coming in, the tourism season is still in full swing in Andalucia and yet unionists have been helping themselves to supermarket goods and handing them out to those who have no means. Such Robin Hood acts could catch on, rather like a less benign form of robbery already has - house break-ins up massively in Mallorca. Things are about to get nasty.


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MALLORCA TODAY - Spanish rise in value added tax to take effect on 1 September

Initially the Spanish Government had signalled that the rises in IVA (value added tax) could take effect as early as today, then it was likely to be Sunday or Monday. Now it won't be until 1 September. As part of the increase, however, certain products, currently at the reduced 8% rate of IVA, will attract the new standard rate of 21% (up from 18%). These will include the likes of spectacles, funerals, hairdressers, cinema and even discos. The new reduced rate of 10% will still apply to tourism services, e.g. hotels, restaurants, transport, while the super-reduced rate of 4% will continue to apply without any increase to certain basic foodstuffs and books and newspapers. This super-reduced rate will, however, no longer apply, as from 2013, to house purchase, and this will rise to 10%.

Of other measures announced by the government, two are likely to threaten more industrial action - liberalisation of transport services and privatisation of ports and airports.

Empire Of The Sun: Balearics poverty

The Spanish word "miseria" can have different meanings. Whichever one you take, they amount to much the same thing. Misery, wretchedness, poverty; they are indistinguishable.

The latest survey of poverty makes the Balearics the fourth poorest region of Spain or, if you prefer your translation, the region which, after the Canaries, Extremadura and Andalucía, is the fourth most miserable and the fourth most wretched. Such a conclusion doesn't do much for all the paradise island guff. It also doesn't do much for the poor who are about to be slammed with a rise in the cost of living because of the increase in IVA. To put this rise in some sort of context, it is estimated that it will cost each household a bit over 700 euros more a year. This in a country where the minimum salary is under 700 (it is in fact around 640 euros per month).

The poverty statistics for the Balearics are bad enough, but if you take them for Spain as a whole, then they are even worse. Spain has the highest index of poverty in the whole of the European Union. And this is a country that is meant to be among the world's richest countries, if only determined by IMF figures for GDP. Yet it isn't surprising. I drew a comparison yesterday with the French minimum salary. This comparison, and comparisons with other European countries, together with their respective general rates of value added tax, are being widely made. There is a very good reason why. Rajoy in his address on Black Wednesday had the brass neck to say that the French rate of VAT was higher than Spain's. Yes, it is, but it won't be once the 21% rate comes in, but more pertinent is the comparative level of income. It is typical for politicians to be economic with their facts, and Rajoy is certainly no different.

The misery and additional poverty that the Spanish Government is about to inflict on the Balearics (and the nation) are not matched by the demeanour of these politicians. The PSOE party locally has gone on Facebook to show a photo of an Italian politician in tears when the announcement had to be made of cuts. It is compared with a truly abhorrent, horrible photo of Rajoy being applauded by members of his cabinet after his address on Wednesday. How dare they? They should hang their heads in shame. Italian politicians could empathise with the misery by being miserable. The Spanish ones can't. They are a disgrace.

In addition to the survey on poverty, another report has been issued. This one calculates that one in four people in the Balearics is at the risk of poverty, a figure that has risen by around 20,000 people in three years. And while this risk increases, the aid, what little there is because Spain isn't particularly generous anyway, is being cut. It is said that the cut to unemployment benefit, another element of the Black Wednesday announcement which Rajoy's cronies were so determined to applaud, will hit the Balearics harder than anywhere because of the dependence upon tourism and therefore the high level of seasonal employment (and unemployment).

The Balearics may not be the worst affected, but if not, this will be because either the Canaries or Andalucía is more affected. Two other regions with the highest levels of poverty, misery and wretchedness.

Yet, how can this all be, some will ask. The wonderful weather, the wonderful lifestyle, the wonderful people, the wonderful ... . Oh, do shut up. It is no coincidence that the Balearics, the Canaries and the region that is home to the Costa del Sol have such high levels of poverty. Each is dependent upon tourism and each employs people on low wages who are finding it increasingly difficult to even obtain employment contracts long enough to enable them to qualify for benefit.

The paradise island line is a facade, a statement of unreality. It is one trotted out by ignorant or smug expatriates who have not the faintest idea. Or one used by visitors who are similarly ignorant. They at least can be excused.

It is the facade, the superficiality of beach lifestyle, of the yacht club, of the golf club, of the doing lunch, of the doing dinner. It is one behind which many can shield themselves. Yet it is a facade that is showing signs of cracking. The Empire of the Sun on the paradise island may not be subject to anything as dramatic as an invasion force turning a world of smug aloofness and parties upside down, but the sun is lowering. It is not going down and never will, but no empire ever lasted.


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