During recent New Year’s festivities, the global media displayed vast crowds packed “like sardines” into places like Times Square, Sydney Harbour, London near Big Ben, and the foot of the Eiffel Tower in Paris, to watch fireworks at the stroke of midnight. For the curious, “packed” as in crowded, pre-dated the expression “packed like sardines,” which was first cited in 1911. As may be obvious to anyone who ever opened an actual can of sardines, the expression usually refers to people being so close to one another that they cannot easily move.[1]
Reflecting on the Festive period in 2019-2020, Mr. Dwight Carty “averaged the number of jets flown into Anguilla between the days leading up to Christmas Day [2019] and December 30, to have been 160 – a favourable comparison with the same period last year.” The Anguillian Newspaper described the jets as “parked like sardines”.[2]
With pent-up demand, Festive 2022-2023 appeared to have similar “post-Covid” counts, but if this year’s guests were represented by jets at the airport, one might think GST stood for, “Goodbye Sweet Tourists”! Gone were Festive days of “sardine” parking. But we were being told that another doubling of the tax burden was needed for a bigger airport. So, do we need lower taxes or longer taxiways?
Lobbying to Lower UK Tourism VAT – and Ditching Dutch and Spanish Tourism Taxes
The World Trade and Tourism Council summarized the impact of taxation by saying it, “increases prices which can lead to fewer visitors.” They linked higher taxes to greater risk for smaller enterprises that are more vulnerable to competitive pressures when unable to pass along such costs. “As well as putting them in jeopardy, [higher taxes] will also result in lower sales across the full range of businesses … (e.g. restaurants, hotels, entertainment providers), with a knock-on effect through the supply chains, on wholesalers, builders and so on. All these businesses pay property and other local taxes and, importantly, employ local residents who also pay taxes and spend the majority of what they earn in the local economy.”[3]
Their examples included lobbying to reduce UK tourism VAT from 20% to 5% to compete with EU destinations. They projected a £1.65 billion improvement in the UK balance of trade over three years if they prevailed.[3]
Another case was a newly imposed Dutch aviation departure tax of ~11 to 45 Euros (for short or long flights, respectively). The tax was repealed the following year, as ~ 2 million fewer passengers traveled through the Amsterdam Schiphol airport by diverting to others – with an estimated loss of US$1.7 billion to the Netherlands economy. [3]
And, a new tax imposed in the Spanish Balearic Islands raised £12 million and paid for some tours and trees its first year. However, their international tourists “plummeted…and a newly-elected alternative government scrapped the tax a year later.” [3]
?10% Higher VAT Decreased Tourism Profits ?9%: Worse than Global Recession!
Yet another tax debacle was examined in a 5-year study of 23,388 food and beverage service firms in Portugal that found “an increase of VAT has a negative impact on GDP, employment, real wage rate, and compensation of employees with a logical rise in unemployment” – with comparative data from Spain and Greece. [4]
Specifically, they found a 10% VAT increase in Portugal caused a 9.4% decrease in restaurant food and beverage services sector profits. That compared to just a 1.15% decline during the financial crisis! It also led to a “massive increase” in the “inactive” firms to 8-9% following imposition of VAT, compared to 2-3% inactive firms during the recession. Thus, 10% VAT increased the likelihood of a firm going bankrupt by 3.063 times.
Following a 9% increase in prices, the study also found a 9% decrease in “non-resident” [tourists] hotel and restaurant revenues, a decrease in total visitor spending of 6.2%, and 2.6% lower goods and services consumption overall.[4]
10% Higher Tourism Tax Decreased Destination Demand by 5.4%
With upwards of 70% of government revenue coming from tourism in the Maldives, a newly published study of taxation and tourism from 1997 to 2017 showed that a 10% increase in tourism tax caused a decrease in demand of 5.4%, overall. With further analysis, they found greater elasticity across the global economy among those visitors from source markets with lower relative shares.
At first, these findings might be dismissed for Anguilla because travelers from our primary market, the US (and Germany) increased travel relative to higher travel taxes in the Maldives.[5]
However, these data were eclipsed by a US Statista survey conducted during 2022 post-Covid inflation. They found that “70 percent of polled [US] travelers with an annual income of $100 thousand [US dollars] or more planned to adjust their holiday programs due to rising prices.” For those earning less than $50 thousand per year, the impact rose to 84% saying the rising cost of living and prices would impact their travel choices.[6]
Lower Taxes or Longer Taxiways?
In the above examples of repealing taxes, it took a year to see the full impact for the incumbent Dutch government in one case, and required a newly-elected Spanish government in the other, to remove such impediments to prosperity for their economies. Whereas, in Portugal, the imposition of 10% VAT resulted in nearly an equal decrease in the vitality of the tourism sector. And the Maldives took a dive, losing ~5% of their tourists when the government increased tourism taxes 10%, not 10% across the board, as with VAT/GST.
Here in Anguilla, this last Festive closed out our first full year since GST was imposed against the will of the People – at 13%, not 10% as in the Portuguese case. Let’s hope the open spaces at the airport meant more people were coming by ferry. If not, we must ask: Do we really need longer taxiways – or lower taxes? Because the only sardines around here were the ones on the plates of those who could not afford festive fare, thanks to GST.
Repeal GST – and pass a balanced budget bill. Now!
This article reflects cultural and economic issues raised on July 5, 2021, at the House Select Committee on GST Public Hearing. [1] https://idiomorigins.org/origin/packedpacked-like-sardines; [2] https://theanguillian.com/2020/01/jets-crowd-anguillas-airport-for-christmas-and-the-new-year/; [3] World Travel and Tourism Council: Fairer and more Intelligent Tax Policies in Travel & Tourism – January 2018; [4] Mateus, Cesario and B. Mateus, Irina, “Does a Vat Rise Harm the Tourism Industry? Portuguese Evidence” (October 1, 2020). Tourism Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3702886; [5] Adedoyin, FF et al “The Effect of Tourism Taxation on International Arrivals to a Small Tourism-Dependent Economy” (Journal of Travel Research 2023, Vol. 62(1) 135–15); [6] https://www.statista.com/statistics/1359630/inflation-impact-holiday-plan
