Taxing The Tourist

Might the Balearics revive the eco-tax or create some similar tourist tax? The government has hitherto discounted the notion, but it may well be looking across the sea to the mainland and to Catalonia where a tax is to be introduced in 2012.

The Catalonian tax envisages payments for a maximum of ten nights of a stay, and it will apply to hotels, apartments, cruise ships, camping areas and rural properties - pretty much everything, in other words. Five-star hotels will attract a rate of three euros a night, four-stars two euros a night and the rest one euro. Children under 12 will be exempt. It is estimated that the tax will raise in the region of 100 million euros and the money will be used primarily for tourism promotion.

The Balearics eco-tax was introduced in 2003 by the then socialist government and was abandoned a year later by the Partido Popular administration. The tax attracted significant amounts of bad publicity and warnings of the harm it would cause to the local tourism industry. It was unpopular because it was unilateral, i.e. other regions of Spain didn't have such a tax.

For all that the tax was not well thought-out, the principle behind it had merit. In purely moral terms, it is not unreasonable to expect tourists to contribute to the provision of resources and services, while the application of a tourist tax is a well-enough-established practice in different parts of the world.

A counter-argument against the tax was that tourists already contributed, albeit indirectly, through spend that supported local businesses which in turn paid taxes. This was also reasonable and, especially among tourist "veterans" who had been coming to Majorca for years, there was some resentment at being asked to pay when they had been contributing for so long.

Since 2003 though, one thing has changed and that is the increase in all-inclusives. It might seem unfair to penalise tourists who don't stay in an all-inclusive, but the level of spend in resorts with high concentrations of all-inclusive has unquestionably been affected, meaning a lower contribution.

Another thing that has changed is that competition from other destinations has become steadily more intense. A concern that a local tax in 2003 might have put the Balearics at a disadvantage with other parts of Spain would now be one of worries about boosting tourism to other countries. However, and as events have shown, this competition can come with a caveat, one of potential disruption.

The competition argument isn't the strongest, and it isn't one that seems to bother the Catalonian government. Instead, faced with a budget cut to tourism of one-third in 2012, it is looking to the tax to enable it to strengthen its marketing clout in beating off the competition.

A problem for Catalonia, however, is that a tax, were it widely known to be earmarked for promotion, would not necessarily play well with tourists. Though the Balearics eco-tax was mishandled, if the PR were done effectively, tourists would be more likely to accept paying for the environment or for good works than for promotion, a matter very much for a regional government, its tourism industry and it alone.

More than all this though, there is the drip-drip effect of added costs to the tourist. To a local tax can be added charges imposed by the British and German governments on air travel. The cumulative effect of the drip-drip would not mean tourists opting for a competitor destination (especially as air duties are universal and indeed higher for longer distances), but it would most likely eat more into the spend once at the destination. On the basis of what Catalonia intends to introduce, a family of four with two teenagers would pay a minimum of 40 euros. This might not seem a lot, but cumulatively, for the tourism population as a whole, it may well result in spend decreasing even more. What is gained through a direct contribution would be lost from an indirect contribution.

There is another factor. IVA. If this is indeed reduced for tourism businesses (a mistake in my view), how might a loss of revenue be recouped? If only on moral grounds, the Balearic Government might be advised to re-visit the concept of a tourism tax, but there may well be another reason to do so.

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