Leader Of The Pack

And continuing what is likely to be theme of the month, the hotels and others have called upon President Antich to form an alliance with the heads of other regional governments across Spain, for which tourism is a vital part of their economies, in leading a lobby to get the central government to back track on the planned rise in IVA. In the report from the “Diario”, the head of the hoteliers’ federation in Mallorca is quoted as arguing that the IVA rise will be a worse move than the so-called eco-tax of some years ago, which was aborted almost as soon as it was introduced. 

 

The strength of the opposition should not be underestimated and the argument against a rise is valid. However, it is also a case of special pleading. What about everyone else who is set to be affected by a two per cent rise on the top rate? Take away the one per cent for the tourism sector, and what might happen? Three per cent on the top rate? 

 

The central government has to find money from somewhere. The alternative of course is cut public spending, but how? New funding is already in place for, for example, that investment finance for the hotels and additional assistance for those in need over the winter. A constant in the economic development of Spain during the boom years has been the role of public spending, especially for construction and civil engineering projects, and therefore for the construction industry, an industry neutered by the current lack of private finance from the banks. Without public spending in some parts of Spain, Mallorca for example, the economy would all but grind to a halt, save for tourism being bashed about by recession and now a possible tax increase. 

 

The crisis, more than anything, has emphasised the underlying weakness of the Mallorcan economy and the short-sightedness of a model based on two key industries without a diversity to act as a safety net. There is an inevitability that taxes will need to rise, despite my assertion that a lowering might actually lead to increased revenues, and if not in the tourism sector then in the wider economy, resulting in shackles placed on consumer spending and thus a further limit to the capacity to come out of recession. In economics, recessions are often referred to with the aid of letters – a U is a fall, bumping along the bottom for a while and then coming up, a V is a sharp fall and then a sharp rise. Then there is a third – a W, two V’s in other words. And that may indeed be the consequence of tax rises, a short-term recovery followed by another slump as consumers put their wallets away.

 

 

To other things, well, one other thing – the weather. The fortnight of storms that seemingly brought summer crashing to an end gave way, bang on 1 October, to a return to sun. It is extraordinary the number of times changes to the weather do seem to coincide with the first day of a new month. And the late summer weather has been remarkable. A temperature of 32 degrees has been registered in Sa Pobla, the weather station commonly used as the benchmark in the north, and meaning around 29 on the coast. Next week is forecast to see a drop to more normal temperatures of 22 to 23, and after that … ? Hold on to your hats when November arrives.

One More Time

Following on from yesterday … . The central government’s tourism ministry reckons that an increase in IVA (VAT) of one per cent (to 8%) for certain tourism-related activities (accommodation, transport and bars/restaurants) will have no effect on the number of tourists. It also reckons, as noted in “The Diario”, that the average price of a hotel stay (one night presumably) will rise by a mere 50 centimos as a consequence. The secretary of state for tourism believes that the fact that the rise will not be implemented until 1 July next year (as would be the case for all categories of IVA, including the general rate) will act as an incentive for bookings prior to this date. While true, it’s also a tad disingenuous, a case of looking for a benefit from something essentially negative. The government is possibly on firmer ground when it points out that the hotel sector has been the beneficiary of a vast amount of investment finance, though to what extent this is actually being exploited one doesn’t really know. 

 

The date for the rise in IVA is probably not coincidental. It will kick in at the start of the third financial quarter in Spain – IVA inputs and outputs are calculated each quarter and payments or credits issued accordingly. The third quarter covers, of course, the peak months of July and August. 

 

The wider point, though, is the drip-drip effect of a tax rise. With complaints about prices having been given a good old airing everywhere this summer, you can bet your life that once it becomes known that there is to be an increase, the forums and all the rest will be full of even more damning Mallorca’s so expensive propaganda. One per cent, in the scheme of things, does not amount to much, but it does add to a cumulative perceptual impression of price rises. The tourism ministry, not least the local one in Mallorca, should be paying heed to those complaints. Indeed, the president of the regional government has expressed his concern about the planned rise. 

 

The response by the central government to the criticisms of the tax rise from the boss of Thomas Cook suggests, at least in part, that it has been stung into making a statement, with its tourism ministry, headed by Joan Mesquida, himself a former director general of the Guardia Civil and National Police (interesting career progression, but there you go), to the fore in issuing this response. The suggestion that he, Mesquida, was actually seeking to keep the 7% rate – one that came from the Spanish tourism promotion organisation, Turespaña – has been rebutted. The party line, so to speak, is being held. But it speaks volumes that the intervention by the head of the second largest tour operator should provoke a response. The true power in the tourism market resides with the tour operators. The tourism ministry, as the frontline contact with the tour operators, should be seeking to distance itself from the argument and looking to keep the operators sweet, but of course it can’t and is so backed into a corner, even if officials might actually agree with Thomas Cook. It will be interesting to hear what TUI, as the leading operator, might have to say about all this.