THE tourist industry yesterday accused the Spanish government of having made a “serious mistake” after it squeezed its motion to put IVA (VAT) up by two percent this summer by just six votes on Tuesday night.

The opposition Partido Popular was determined to stop the government from getting the motion passed, but it could not quite gather the cross party support it needed to block the motion and the tourist industry yesterday warned that the increase in VAT is going to have a “seriously negative impact” on the country's holiday market this year.

All of the country's associations of travel agents agreed that such a move could not have come at a worse time with the tourist sector still struggling to climb out of the recession and fight off stiff competition from cheaper non Euro zone destinations.

The President of the Spanish Federation of Travel Agents, Rafael Gallego, said yesterday that the VAT hike is going to hit domestic and foreign tourism “because all it will do is make Spain an even more expensive destination when governments around the world from Europe to the Caribbean are doing their best to help the tourist industry reduce its prices with fiscal breaks and incentives.” The retail sector is not impressed by the pending VAT hike either. Business chiefs are warning that the increase will have negative effects on consumption and, therefore, on investment and jobs, and will hurt the economic recovery of Spain which Europe fears is going to take longer than initially expected.

The head of the Small Business Associations, Pimem, in Majorca, Juan Cabrera said that any increase in taxes is going to come as a “severe blow” to the retail sector but the hostelry and service industries in particular.

Ironically, the government has been urging the tourist industry to compete with the emerging destinations by offering value for money and better quality.

The tourist sector feels that is now almost impossible with VAT going up by two percent.

“It is going to increase operating costs, further reduce profit margins and lead to more job losses,” Cabrera said.