Business sectors that pay their workers less than 27,500 euros a year, such as tourism, the meat industries, or home delivery, “have impoverished” the whole Catalan society. This provocative idea is one of those arising from the Fènix Report prepared by a group of seven Catalan economists who try to elucidate the reasons and consequences of low productivity.
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The report presented today at the Col·legi de Periodistes details that “below a certain wage level, the social contributions made – by the worker and the company – plus the direct and indirect taxes paid by the worker, do not cover the public services that the worker, and their family, consume.” Therefore — the report continues — “the rest of society, those who earn more, have to compensate with their taxes the fiscal difference between the total contribution of this worker and what they receive socially.” The result is that society as a whole becomes impoverished.
The authors – Xavier Roig, Xavier Cuadras, Modest Guinjoan, Miquel Puig, Jordi Galí, Guillem López-Casasnovas, and Jaume Ventura – point out that the most subsidized economic sectors are “tourism – particularly sun and beach tourism – and the meat industry.” And the beneficiaries of that “subsidy” are actually mostly from outside Spain since tourists pay a price for hotel services that does not cover the social cost of workers and companies buy meat products at prices lower than their cost.
The economists give some everyday examples: “we calculate that a 3-star sun and beach hotel benefits from an implicit subsidy of 6 euros per overnight stay, of which 80% of the beneficiaries are foreigners; that a pig slaughterhouse benefits from a subsidy of 0.7 euros per kg of meat produced, which is consumed 75% outside Catalonia; and that the urban riders service enjoys a subsidy equivalent to 3 euros per delivery.”
“Those economic sectors that have grown have not only failed to contribute more welfare, but have also taken resources from the system that have impoverished us as a society”
The report maintains that the moderation of Catalan productivity and, therefore, of GDP per capita and general welfare, is “fundamentally the result of the uncontrolled growth of certain economic sectors.” In contrast, the industry has behaved similarly to other European countries.
The root of the problem is that certain very low productivity sectors grew “excessively in employment volume” reducing the weight of other higher productivity sectors, especially manufacturing. The authors believe that Catalonia’s growth in recent years has not been positive nor “has it helped improve the welfare of Catalans.”
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The authors state that “the evolution of the economy has not only failed to bring substantive improvements in the living standards of Catalans, but the fact is more serious: for many segments of the Catalan population, the living standard they had at the beginning of the millennium has decreased.”
Among the proposals to redirect the situation, they highlight raising VAT in the tourism sector which currently enjoys a reduced rate and “significantly reducing tourist capacity well below peak demand.”
Also, the authors advocate ending the use of “the figure of fixed-discontinuous contracts.” Regarding wages, the report supports “increasing the Minimum Interprofessional Wage until the growth of low-skilled jobs stops.”
In taxation, the proposal is to “review taxation to stop favoring special business regimes and penalize the generation of high labor incomes.” And it strongly criticizes some tax policies: “the current tax regime in Catalonia is especially hostile to professionals and executives with high incomes, and that harms the establishment of business headquarters and management centers and ultimately erodes the tax bases.” To compensate, they propose raising “the property tax on second homes and tourism taxation and extending co-payments in different areas.”
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