Wednesday, May 23, 2007

The killing of the hen

Each time foreign tourism to Spain, to a certain region or town, is in danger, there will be warning cries not to kill the hen laying the golden eggs. The tourist hen of Spain has laid many golden eggs in the private nest of property speculators, but also in the nest of Hacienda, the regional governments and especially the nests of the local governments on the coasts and the islands.

The foreigners settled preferably in smaller towns and villages, without big industries, with modest traffic and building activity, and low local taxes and charges. But over the years, the little village changed. On the outskirts of the village grew up urbanisations, terraced houses and apartment blocks, filled by foreign property buyers wanting their part of the sun in Spain.

Almost for every house or apartment sold, came another car, creating traffic chaos in the narrow streets of the centre, where the public offices were situated, the banks, the small shops, restaurants and bars. The ruling party in the municipality, often closely connected to the property promoters, made the town hall the biggest employer in town, filling the ever growing public offices with party members, friends and relatives. This reduced unemployment and created a firm group of supporters for the next elections….

The tax egg

A town hall has reduced income possibilities, mainly a modest subvention from the government in relation to citizens registered on the “padron municipal” (municipal census) and taxes, fees and charges on construction and ownership of property. The town hall saw in the tax egg the possibility of financing their XL size administration. The “catastro” (land registry) collaborates by lifting the tax values of properties. Today we have the following situation:

- 70% of all tax income to the 8.000 municipalities in Spain comes from property construction and ownership (This information comes from a study made by Morgan Stanley).

- 27,5% of total income of the municipalities stems directly from the transformation of agricultural land (finca rustica) to building land (finca urbana), in the form of building plots ceded, and taxes, charges and fees paid.

Consider: the percentages given are the average for all municipalities in Spain, for the rural ones in the two Castillas, as well as the tourist towns along the coasts and on the islands. Your local town hall may have a much greater part of their income from the property sector.

A vicious circle

It is difficult to imagine a mayor in a tourist town voluntarily reducing the tax income from property ownership. The law gives the town halls very limited manoeuvring possibilities on this field, and the mayor has to pay all his employees every month.

Even less imaginable is that the mayor will be saying: We have now reached the limits of our sustainable growth, we have neither the streets nor the parking capacity for more inhabitants, we have no guarantees for a constant water supply, telling his friends, the builders: “Señores promotores, we cannot approve your proposal for an urbanisation of 3.000 dwellings and two golf courses, even if it gives the town an increase of 30% in total income, and even if you offer me personally 1 million Euro in black money!” And then turn around and inform 20% of the employees in the town hall that they would be fired and would have to go on the dole….

If such a mayor exists, he should be awarded a medal for civil courage.

The vicious circle will not be broken, unless the present crisis in the property sector develops into a full-blown economical crisis for Spain. The question is also: How many golden eggs are the tourists willing to lay in the Spanish nests?