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Monday, November 23, 2020

Bleak prospects for Spain

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After almost seven weeks of confinement due to the coronoavirus, and although it has been announced that some restrictions will be lifted this weekend, the future looks bleak for Spain. The country is deeply divided, and this split brings back memories of the two sides that fought a bitter Civil War from 1936 to 1939. Courts will be bombarded with lawsuits against the leftist government due to its extremely poor handling of the pandemic, which in the second half of March alone has destroyed more than half a million jobs and driven the unemployment rate to 14,4%. While at the end of last month more than 3.500,000 people had no job, the country’s GDP is also set for a historic fall of 13.6%, according to data from the Spanish Central Bank released on the 20th of April.

Generally speaking, there are three ways of balancing deficit and public finances, which can be combined if needed: austerity by reducing governmental spending, structural reforms to foster growth, and tax hikes.

Unsurprisingly, Pablo Iglesias, self-proclaimed communist and leader of the ultra-left party Podemos, coalition partner of socialist Prime Minister Pedro Sánchez, has announced his intention to finally implement a so-called COVID tax. The concept to target the wealthy has existed since the party was founded in 2014, as part of what could be called a shameless envy campaign.

It’s supposed to become part of a recently devised “reconstruction plan”. Although all these ideas were initially rejected by the PSOE Socialists, the current crisis seems to be the perfect time to pull them out of the hat again. No concrete details are known so far, but the party’s program gives you a hint about what could become by far the biggest tax hike in Spanish history. Therefore, the following measures might be implemented in the foreseeable future:

  • To rise the income tax to 47% for those who earn 100,000 euros per year, and to 55% for persons with an income of over 300,000 euros
  • To tax capital income the same as labor, including any appreciation of value generated in less than two years (extendable to six years for real estate)
  • To eliminate all tax breaks for pension plans, currently at 8.000 euros annually per tax payer
  • To adjust regionally different inheritance and gift taxes
  • To establish a 35% corporate tax on a tax base of more than one million euros, and a minimum of 15% on the accounting profit
  • To enforce a cash deposit tax of at least 0.2% nationally, giving the autonomous communities the chance to add further charges
  • To approve a financial transactions tax of 0.3% on shares and derivatives, but excluding national debt securities
  • To add a surcharge for unoccupied homes on the property tax
  • To introduce various “green taxes”

The conveniently renamed wealth tax has the ambitious purpose to raise 1% of Spain’s GDP, equivalent to more than 10 billion euros. First homes worth 400,000 euros or less would be exempted, but a gradual increase would result in a 2% tax on equities of more than one million euros, a 2,5% tax on those of more than 10, a 3% tax on those of more than 50, and a 3,5% tax on those of more than 100 million.

As usual, these procedures won’t produce at all the desired effect and only make the situation worse, by decreasing economic activity and accelerating capital flight. As Mr. Iglesias has repeatedly praised Venezuela, and the Left never learns from past mistakes, Spain should prepare for the worst…

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