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Another decree angers Costa Rica's tourism sector

A reorganization of the Solís administration has the tourism sector on edge. On Monday, the Costa Rican Chamber of Hotels criticized a decree signed by President Luis Guillermo Solís that places the tourism sector under the authority of the Economy Ministry.

“There are members of the current Cabinet who underestimate the tourism sector,” the Chamber of Hotels stated in response on Monday.

In May, Solís named Wilhelm von Breymann as Tourism Minister. But Article 2 of Executive Decree #38536, published in the official newspaper La Gaceta on Aug. 20, states that tourism will fall within the same administrative sector as the Economy Ministry, as part of a reorganization of the executive branch ordered by the Planning Ministry and Casa Presidencial.

Article 5 states the economy minister will be the top official governing the economy, industry, trade and tourism.

Solís over the weekend told members of the media he was unaware the decree changed the tourism sector’s category. He acknowledged that the tourism industry is extremely important for the country, and he denied it was an oversight.

The National Tourism Chamber  (CANATUR) also voiced disapproval of the decree.

Chamber Executive President Pablo Abarca claimed that because tourism now is under the authority of the Economy Ministry, business owners believe the government is sidelining their sector.

“We are now a subsector of the economy, despite being a productive activity that generates more than 500,000 jobs, contributes 8 percent of the GDP, and represents 20 percent of Costa Rica’s annual exports,” Abarca said.

The Tico Times attempted to speak with the tourism minister to receive his response to the polemic, but his press office said he “would not yet address the questions because he is discussing the matter with Casa Presidencial.”

Problems with the new decree add to ongoing controversy in the tourism sector over a recent Finance Ministry decree ordering tourism businesses to charge sales tax on all outdoor activities such as rafting and ziplining, among others, as well as ordering them to pay back taxes for the past four years.

Ministry officials justified the measure in a new interpretation of the Sales Tax Law and in the context of reducing the country’s growing fiscal deficit.

Business owners argue they never collected the taxes because they were never notified to do so. Some have begun receiving official notifications recently from the Tax Administration setting Sept. 30 is a deadline to pay back taxes for the last four years.

Vice President Ana Helena Chacón, who also is coordinator of a government Tourism Competitiveness Committee, on Monday said the committee would lobby for a change to the ministry’s interpretation, although Tax Administration officials have continued to insist they will collect the tax as required by law, “no matter what.”

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Ken Morris

I would like to think that Solís intentionally downgraded the political influence of the tourism industry, not unintentionally as he apparently said, since someone needs to send out a strong message that continuing to coddle tourism is not in Costa Rica’s best economic interests.

The data provided by the industry itself in response to the decree says enough. No one in their right mind believes that tourism provides 500,000 jobs. This would be in the neighborhood of a third the country’s entire labor force, way higher than the truth. The only way the industry can come up with a figure this high is by using some nebulous multiplier, according to which like a dime of every dollar a tourist spends on a hotel ends up in the pockets of the workers on a banana plantation–sheer nonsense. Indeed, although not mentioned in this article, the industry also responded by yammering on about the 2 million plus tourists who arrive annually, when everyody knows this is bogus, since the figure counts the Nicas who come and go, the perpetual tourists who come and go, and everybody who flies in on business. Basically, the industry is lying about its importance, and industries that lie to curry political favor should not receive it.

Yet, while the tourism industry’s data cannot be believed, all responsible investigations show that tourism does contribute more jobs to the economy (about 13% I believe) than it does to GDP (about 8%). Stop to think about this. When an economic sector provides more jobs than GDP, we’ve got a labor-intensive sector, and generally labor-intensive sectors pay low wages. Isn’t this the case with tourism? How much money do the construction workers, maids, cab drivers, and restaurant workers really earn? What kind of advancement opportunities are available to most workers in tourism?

Past a point reached very quickly, tourism is an industry that provides very little added value while confronting the problem of diminishing rather than increasing returns to scale. They’re not after all making any more beachfront property, so more tourism just becomes less profitable. Add that tourism raises the prices on things like land for the Ticos. As foreigners bid these prices up (and are protected now by CAFTA when doing so), the Ticos have to move farther away and/or pay higher prices for their own land. And for what, so they can get jobs as maids in resorts?

Plus, the proponents of tourism never consider what might have been without them. They look around, see their productive resorts providing jobs to the locals, and pat themselves on the back for having contributed to the economic development of the country. What they fail to understand is that if they hadn’t been there economic development likely would have happened in other industries. By gobbling up the land and dominating the economy, they may actually have been more of a curse than a blessing.

My own view is that tourism had a place on Costa Rica’s economic development–it is a smart way to jump start an economy with little capital–and still has a place. There’s nothing wrong and much right about maintaining a vibrant tourism industry, even if it isn’t the best industry to have. However, that cow has already been milked, and it’s time to move on with other economic initiatives.

The risk here is that the industry is already so large that there are protectionist financial interests that want to foster it for their own benefit rather than for the benefit of the country. Call me a cynic, but doesn’t this happen? Of course it does. Someone like Solís needs to start the process of diminishing the political clout of those with vested financial interests in tourism and start planning for an economy in which tourism is only part of the mix rather than the sacred cow.

BTW, it does seem unfair to me to try to tax tourist businesses retroactively based upon a new interpretation of the law. This is impossibly unfair, and I don’t see anything to be gained from hurting the industry. However, I don’t see any harm in taxing the industry in the future at the same rate that other industries are taxed, do you? Why should a sector that provides mostly bad jobs, drives up prices, and confronts diminishing returns be protected?

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