They keep on coming. A latest headline advises us that the government could lose up to 90 million euros of tourist tax revenue this season. Never!? Really?
The regional government's financial planning is quite plainly in tatters (another obvious observation). Of taxes it can raise, e.g. the tourist tax, there will be a vast deficit compared with what had been budgeted. There is some compensation in the form of Spanish government reconstruction funds for the regions, but the usual revenue mechanisms have been severely damaged. These include, for example, IVA (VAT).
The IVA raised by the regions goes into the Spanish government's regional financing distribution system. This financing system for 2021 is already destined to be negatively affected. For the Balearics, there had also been the hope that Madrid would get round to legally establishing advantageous fiscal measures within the REB special economic regime. It's hard to see how Madrid can now do this.
The Spanish government handouts do not have to be repaid, which is a relief. The situation is unlike during the financial crisis when the Balearic government borrowed heavily from the state - a key reason why the debt is so high (8,863 million euros at the end of 2019). There have been calls for the state debt (more than half of this) to be lowered or even written off. This might be worth considering. Reduce or eliminate debt, and the government would potentially be in a better position to borrow. Radical approaches to financing are going to be needed (another statement of the obvious).
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