There has a been a lot of news recently so it might have passed you by but something genuinely staggering happened in this country last week. It wasn’t the Prime Minister bungling the most important speech of her life. Nor was it Theresa May getting confused between support for the free market and intervening in it. No, it was the Welsh Government’s budget – with the first taxes to be levied and collected by a separate authority in Wales in nearly 800 years.
Nationalists in Wales will be glad of this fact in and of itself. But should we be? Well powers for their own sake aren’t that interesting, it’s more about what’s done with them.
One of the things that came out of the budget wasn’t actually a plan to use them to create a power but a shortlist of potential new taxes. Mark Drayford, the economy minister of the Welsh Labour government in Wales, set out some possibilities. Among these were a new tourism tax and a new disposable plastics tax.
There is good reason to support disposable plastics taxes and Wales has a good track record on them. Wales was the first place in the UK to introduce a tax on carrier bags and the subsequent drop in use was a cornerstone of the argument in getting it adopted by other parts of the UK. Devolution as it should be – experimenting with good governance, working out what we want less of and using price incentives to change a negative outcome (after all there are some pretty nasty externalities that come out of plastic bags).
The problem is, that makes the second one on the list quite bizarre. Presumably the Welsh government thinks that tourists are a good thing for Wales, it certainly likes to appeal to them to come (and spend their money in local communities). But as we alluded to above we mostly use taxes, like plastic bag taxes, to get less of something.
Tourist taxes make sense where demand is inelastic – there’s only one Sagrada Familia and one Parthenon for tourists to visit after all. And taxing people that free-ride on public costs of keeping places like Venice afloat (literally), makes sense. But where demand is elastic, where it is responsive to price changes, then taxing tourists just makes the numbers coming fall and it reduces the economic benefits of tourism.
While the Tourism Alliance measures elasticity of the UK as a whole, it doesn’t give exact numbers for Wales. Yet there are some proxies that we can use that suggest the Welsh tourism sector is elastic and that this tourism tax would be a pretty poor idea.
The first is simply that the Welsh government advertises heavily both internally and externally - if you get high numbers of visitors turning up regardless of the money you spend telling people to then you wouldn’t bother (you’d hope).
The second is that the Welsh government themselves collect figures of visitors and their and Visit Britain’s own analysis shows swings with big increases in tourist numbers during the recession and dropping after as well as when the weather in the UK is poor (2012 was a particularly rainy summer in Wales and was just as the UK was recovering from the financial crisis).
Thirdly the falling value of the pound has had an enormous impact on numbers coming to Wales. In the past year tourism numbers are up 11%, following a drop in the pound after the Brexit vote.
The tourism sector supports 40,000 jobs in Wales, boosts GDP by £4.8bn per annum and the evidence suggests this (and the numbers of tourists coming in the first place) is price sensitive. If the Welsh Government wants to use a sector as a cash cow then tourism really isn’t the one to go for. Maybe it would be good for Wales to wait another 800 years before adding any additional taxes?