Manuel Lagares, president of the committee of experts that created a report on Spain's tax reforms, defended the VAT increase again yesterday. "This is a sacrifice that we need to make in order to create jobs," he said. Businesses don't see it that way. Although a VAT change benefits exports, sectors such as tourism and the arts are suffering.
The movies, theater, special events and art world were hit hard when the VAT went from 10% to 21% in September of 2012. Many closed shop and cut jobs. The problem is so bad that the government decided to reduce the rate for artists who sell their work to galleries so that the Arco art fair could run.
Worst of all, the tax failed to raise as much revenue as expected and increased confusion for consumers. Rajoy said yesterday in Congress that he will lower the VAT tax for cultural events and products. This tax cut, combined with the personal income tax cut, is being deployed strategically in advance of upcoming elections.
Besides the political motivation, lowering the tax for the arts will offer some upside for growth and job creation. Now, Spain is paying over the European average in taxes in this sector. Rajoy has made the right decision by correcting the VAT, because the arts, often dependent on subsidies already, need all they can get to survive this tough economy.
A stiff fall in demand for art and cultural events weighs hard on galleries, art managers and artists. Rajoy's move can help this industry bounce back and become competitive in and outside of Spain.
