Tax hike paints bleak picture for arts scene

Among the measures Prime Minister Mariano Rajoy announced on September 1 aimed at reducing the country’s public deficit was a sharp increase in VAT, or sales tax, from eight percent to 21 percent across a range of cultural activities. It is still early to gauge the full impact on an industry responsible for four percent of Spain’s GDP, but art galleries, museums, movie houses, and music venues have reported falling numbers.

The arts industry warns that the tax hike will lead to a sharp drop in spectators, the closure of cinemas and add to the country’s 25-percent unemployment rate.

Music groups are slimming down, theater troupes are opting for cheaper productions and smaller casts — monologues are very much in vogue — and film productions have nearly ground to a halt.

Prior to the rise Spanish cinemas were already seeing a fall in box office takings due to rampant digital piracy.

In September, more than 4,000 business associations in the culture industry asked the government to grant a six-month moratorium meeting in a last-minute bid to save an industry that employs 550,000 people.

The associations, grouped together as the UAEICE, say the tax hike will drive away 43 million spectators, cost 530 million euros in lost ticket sales and 4,500 jobs, and lead to the closure of 20 percent of music, film and theater companies.

And, according to a study by global accounting firm PricewaterhouseCoopers (PwC), the government will have less than nothing to show for it, as its annual take from the arts would actually fall by nearly 10 million euros after the tax rise.

Private museums and art galleries will suffer most from the tax hike. Public museums are exempt from the tax, but have also been struggling to compensate for government cutbacks.

So far, none of the country’s major art galleries say they have noticed any drop in numbers, but add they have had to raise prices in their gift shops. Madrid’s Prado Museum, home of masterpieces by the likes of Francisco Goya and Diego Velázquez, began opening its doors seven days a week this year in the hope that more ticket sales would make up for a 12.6-million-euro annual drop in subsidies.

Carlos Urroz, the director of Spain’s largest annual art fair, ARCO — the next edition of which is set to take place in February — has asked the government to lift the tax for the duration of the event. He says that Spain’s private galleries make up half their yearly sales at ARCO.

Juan Ramón Gómez Fabra, president of the Federation of Spanish Cinemas, says movie theaters have been struggling in recent years, with smaller screens closing or laying people off. He describes the tax hike as “the straw that broke the camel’s back,” while Josetxo Moreno of distributor Golem adds: “If we don’t do something to stop the decline, the medium-sized films will gradually disappear and all that’s left will be blockbusters and very, very small releases.”

Attendance had already fallen by 10 percent over the same period the previous year. Numbers for September of this year are slightly down on the same month in 2011.

Spanish theaters have been hit hardest by the tax hike, with the theater owners association FAETEDA saying there has been a 30 percent fall off in turnover over the last month compared to the previous year.

Concert promoters say sales for the last quarter of the year are down on 2011. They say they will likely lose money this year as they have had to absorb the tax hike, as concerts were already planned ahead and tickets printed. The sector says many big-name artists will probably leave Spain off their European tour schedule, as they will not be prepared to perform here for less money.

Opposition parties have also pleaded with the government to reconsider the new rule, which moves cultural activities into a general tax rate category from a reduced rate. But under huge EU pressure to cut costs, Rajoy is unlikely to change tack. The new tax is double the 10.1-percent average rate for the arts in the euro zone.

The sector is also laboring under a 15-percent cut in public spending on the arts, and delayed payments from local authorities, which are a major source of income for theater, dance and music tours across the country.

Local and regional governments, which spent heavily during an era of easy credit, have now taken center stage in Spain’s debt crisis drama.

As town halls struggle to pay bills for even basic services such as street-cleaning and hospitals, their long tradition of sponsoring music festivals and theater is under threat.

“The tax hike is a major setback for the development of Spanish arts and seriously injures a sector with huge economic and job potential,” says the General Society of Authors and Editors (SGAE), which last month called on Rajoy to go back to the drawing board.

The SGAE, which manages royalties for music, literature, theater and film, says the tax measures will increase piracy in a country already considered one of the world’s most egregious copyright violators.

Minister of Education, Culture and Sport Jose Ignacio Wert wants to usher in new financing models for the arts by increasing private sponsorship but so far has not defined clear tax incentives to encourage patrons.