In October 2003, a research paper was published that analysed the effects of tourism on local public spending. The paper was specifically concerned with municipalities, making estimates for two samples of Spanish municipalities - one of 1,067 municipalities with more than 5,000 inhabitants and a second for 2,579 municipalities with more than 1,000 inhabitants. (It might be noted that even today 84% of Spain's 8,131 municipalities have fewer than 5,000 inhabitants.)
The preamble to this paper made clear that municipalities with high levels of tourism activity had been expressing their concerns for some years about the impact of tourism on their finances. Spending related to tourism, it was noted, exceeded income derived from tourism, resulting in budget deficits, tax increases and reduction in the quality of public services. This latter aspect was "especially worrying for the future".
The model used in arriving at results found that there were positive effects on spending for three functions - civil protection, citizen security and community well-being. There were negative effects in respect of social and health spending, housing, urban planning and general expenses. There were neutral effects when it came to education and culture.
In considering possible solutions to the negative effects, the paper raised the notion of a tax on stays, a "hotel room tax". It pointed to other research which indicated that such taxes had proven to be effective. However, it argued that there was a lack of empirical analysis to back up this claim. In October 2003, which was probably a coincidence, the Balearic government, by then under the Partido Popular, did away with the 'ecotax' that had come into effect under the previous PSOE-led administration in May 2002.
But the mere reference to the potential benefits of a tax has particular interest given the author of this research paper - Antoni Costa, then a member of the applied economics faculty at the University of the Balearic Islands and now the PP Balearic government's vice-president and minister of finance.
Costa and the current government have decided to maintain the Ecotax Mark II, officially known as the Sustainable Tourism Tax, that was introduced in July 2016 by a successor PSOE-led coalition. While it might be thought that a right-wing government would have a natural aversion to such a tax, which was the case in 2003, the decision not to abandon the tax lay with its social acceptance. In other words, the citizens of the Balearics approve of the tax, even if hotel businesses and some tourists may not.
This acceptance is, at any rate, how the tax is now being justified. But it can't be overlooked that it does generate significant government revenue. The anticipated income for 2024, as included in the budget for this year, is 152.5 million euros, up from 135.8 million in 2023. Without going into a discussion of how the government is repositioning the tax in terms of how it is spent, as this isn't a purpose of this article, neither this repositioning nor the purposes of the previous government have implied that it is a mechanism for municipal funding. There have been specific projects proposed by town halls that have been supported financially, but this isn't a generalist tax conceived to benefit municipalities. And herein perhaps lies a problem, especially for the sustainable financing of those municipalities with high tourist numbers and thus great demands on spending because of the numbers of tourists.
The use of a tourist tax to bolster municipal funds is very much in the spotlight in Andalusia, where PP-governed cities such as Malaga and Seville (both heavily dependent on tourism) are agitating for a tax to help pay for all their services. They need regional government approval, as they don't have powers of their own to raise a tax; this need for approval applies to all regions of Spain.
Over twenty years on from Antoni Costa's paper, the issue of municipal finances related to tourism has become ever more acute. While there has been depopulation in parts of Spain's interior, this has most certainly not been the case in coastal tourist municipalities. In Mallorca, there has been more or less total population growth by municipality but especially so on the coast. The numbers of tourists are much higher than in 2003. The demands on municipalities have therefore increased, and services have become more and more stretched.
In 2003, he was able to conclude that citizen security (policing) was being catered for positively. This can't be said of today. The financial crisis and the consequent regulations for budget stability greatly limited town hall recruitment, and this included police forces. Town halls are now in a situation of catch-up and to give one example of a tourist municipality, Pollensa, the chief of the local police has estimated that the force needs at least another ten officers.
Mallorca's largest tourist municipality is Calvia, where the total number of tourist accommodation places is close to 70,000; Palma has 57,400. Calvia is also one of Spain's largest and is a member of the alliance of sun and beach tourist municipalities (AMT). An exclusive group of eight municipalities, which also includes the likes of Benidorm and Torremolinos, it is demanding "exceptional inclusion" in the law that regulates local funding benefits from state taxes.
The president of this alliance is Calvia's mayor, Juan Antonio Amengual. He's been speaking in the past few days about the need to reform the criteria contained in the law, which dates back to 2004. "The eight municipalities attract nine per cent of foreign tourists and concentrate 19% of overnight stays. We are under high pressure for a few months which means extra cost and overuse of infrastructure." He has in mind the costs of cleaning, police, lighting, for example. In Calvia, the town hall has to provide services to 25 urban centres on 50 kilometres of coastline and with 15 beaches.
There have been meetings with Rosana Morillo, the Mallorcan who is Spain's secretary-of-state for tourism. These have addressed reform of the law, and Morillo is said to have been "favourable" to requests. Amengual and the alliance aren't looking for a tourist tax, but they have made proposals of a tax nature. One has to do with IVA (VAT). All purchases by town halls would be subject to a reduced rate of three per cent. In addition, they would like percentages of income tax, IVA and taxes on alcohol, tobacco and hydrocarbons to be transferred to town hall treasuries - respectively 2.1%, 2.32% and 2.92%.
When the mayor of Salou (another of the eight) spoke about these proposals some months ago, he insisted that it wasn't about requesting more money for the sake of it. Both Pere Granados and Juan Antonio Amengual have stressed the need to define what a tourist municipality actually is. Bizarrely enough, only Salou of the eight in the alliance qualifies for this definition under the 2004 law. The AMT would ultimately like 53 municipalities to qualify, but while Morillo may have been receptive, she in herself is not in a position to effect legislative change; the finance ministry, for one, would clearly have a major say.
These attempts by the AMT are a reflection of criticisms that have existed for years. They go back to the time of Antoni Costa's research and before and focus principally on what is perceived to be general lack of funding of tourist resorts by the Spanish government. These criticisms have mainly had to do with infrastructure, but now the demands go beyond upkeep and embellishment to being able to provide quality services.
For Amengual of the PP, there is a readymade advocate in the Balearic government, and that is Costa, who will surely not have forgotten his 2003 research. The Balearic government, as with Calvia town hall, understands the importance of quality, and it is heartening that the AMT would like far more municipalities to come under a financing umbrella. In Mallorca, Alcudia, the island's third largest tourist municipality with 41,215 tourist accommodation places, would be at least one of these.
Ultimately though, these proposals place the ball in the taxpayer's court. Why not the tourist in the form of a specific tax? Well no, if the percentages for certain taxes were applied, IVA most obviously. Tourists are spending ever more, which implies more indirect tax revenue. They pay in any event. And they, like everyone else, require resorts that look the part and have all the necessary services.