Comment: Is the Balearic Eco Tax already having a negative impact?

Comment: Is the Balearic Eco Tax already having a negative impact?

Industry consultant Andy Cooper discusses whether the new Balearic Eco Tax is taking its toll before its even been introduced.

The Balearic Islands introduce an Eco Tax on July 1. This is charged at various rates on all tourists arriving in Mallorca, Menorca and Ibiza, ranging from €0.50 to €2 per day (+ 10% VAT) per traveller, depending on the star rating of the hotel in which the guest is staying. In addition, all cruise ship arrivals are charged at €1 + 10% VAT per day, and it is this last charge which interests me.

I have recently returned from a short break in Palma. One feature of driving round the coastline into the city was the sight of cruise ships sitting in the cruise port, which could be anything from one to four ships on each day.

Whilst we were not on the island for a full week and therefore didn’t get the full picture, there certainly seemed to be significantly less movement in the cruise terminal, with no ships at all on two days whilst we were there.

Historically, we have always made the point to governments that the difference between how hoteliers work and how tour operators do business is that the assets of hoteliers are fixed, and cannot be shifted to suit market demand.

This gives the hotelier commitment to a destination whether good times or bad. You only have to look at the situation in Tunisia and Egypt to recognise the potential impact of this – hotels standing empty, staff laid off, and businesses facing significant problems.

Cruise lines also benefit from having floating assets, and are relatively uncommitted to any single operating port – if a problem occurs in a destination, they can simply change their itinerary and operate elsewhere.

This may not always be easy, as there may not be convenient alternative ports, it can cause more days at sea and the seas themselves can be a source of danger.

You don’t see many cruises operating through the waters around Somalia, although sometimes some sort of operation remains necessary – if you want to sail through the Suez Canal and head to Asia, you can’t avoid the strip between Yemen and Somalia.

It has always been my view that tourist taxes imposed by destinations are ultimately counter-productive. In the short term, if business to a particular destination is strong, the destination may see no negative impact as a result of the introduction of the tax.

However, the risk is that either tourists object to the tax and vote with their feet, electing to travel to other destinations, even if the cost is minimal, or resentment is built up between the tourism industry to and in the destination and the government.

As tourism is effectively a partnership between the public and private sector in any destination, together with outside providers of tourism arrivals, that resentment is ultimately damaging to tourism.

Furthermore, there is a level of cynicism on the part of the private sector as to how any tax revenues will be spent – and they are rarely perceived as intending to benefit tourism. Plus it has to be a particularly honest and transparent government that can convince the tourism sector that they are being open in this regard.

There is currently another interesting example of this issue affecting the cruise industry.

The Cruise Line Industry Association (Clia) is suing the city of Juneau in Alaska, which charges a $5 entry fee per cruise ship passenger in addition to a per-passenger port development fee of $3, and the sector estimates that more than $35 million has been paid on these two fees over the past four years.

Any taxes of this nature are subject to restrictions in US Federal law and must be spent for the benefit of cruise passengers.

Juneau has, amongst other things, planned to spend around $10 million building a 50 foot high whale sculpture more than a mile from the cruise port. Alaskan cruises are massively important to the economy of Juneau, so a dispute of this nature is not helpful to either the local authorities or to the cruise industry.

Whilst the Balearic Eco Tax remains relatively low, at €1 per night per cruise arrival, that still equates to around €3,500 tax payable for the largest ships and probably typically around €1,500 - 2,000 per arrival for the average cruise ship.

If a cruise line can avoid that by travelling to a different port, over a full summer season, this can make a difference of €40,000 to €90,000 to the bottom line of the cruise line.

The introduction of the Balearic Eco Tax was also tinged with uncertainty. The original plan was to introduce the tax on 1st June, but the enabling legislation was only passed by the Balearic Parliament in early April.

This resulted in a short delay in implementation of the new law, but cruise operators, like tour operators, do not like uncertainty, and the risk of new taxes, and thus additional costs, over which they have no control.

The industry knew from last autumn that an Eco Tax was a risk for summer 2016, even if there was no certainty of the date of introduction or indeed the likely tax rate.

Therefore, the simplest way to plan for a possible tax is simply to avoid Mallorca or the other Balearic islands until a decision was made, allowing for an assessment of the possible tax.

Of course, it may be that my anecdotal view of a reduction in cruise arrivals may be entirely misplaced, and the arrival days of the cruise lines have simply been changed for operational reasons – however, that also brings its own problems.

Anyone who has been on one of the smaller Caribbean islands when four ships have arrived on the same day will have seen the congestion and disruption large scale arrivals can bring.

Ultimately, the Balearic Islands have to decide whether it is sensible or appropriate to impose new taxes on their principal source of revenue, namely tourism. As you would expect, I believe firmly that this tax is counter-productive, and remain convinced that in the long term, the more sensible approach is to withdraw the tax, and raise the revenue in other ways.

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