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Spain Proposes Major Tax Increases to Fund 2021 Budget

Wealthy Spaniards and corporations would pay more.

Pedro Sánchez
Spanish prime minister Pedro Sánchez addresses Congress in Madrid, July 17, 2018 (La Moncloa)

Spain’s left-wing government has proposed raising public spending by 10 percent next year to cope with the effects of coronavirus. If approved — the ruling parties do not have a stable majority in Congress — it would be the biggest budget in Spanish history.

Health spending would rise 150 percent, or €3.1 billion. In addition, €2.4 billion would be set aside to prop up primary care and buy vaccines. Another €700 million, drawn from the EU’s €750 billion coronavirus recovery fund, would go to elderly care.

Spain qualifies for around €70 billion in EU grants and €70 billion in loans. It is not expected to make use of the loans, given that it can still borrow affordably on its own.

To pay for the extra spending, the coalition government also plans to raise taxes.

New taxes

  • Taxes on incomes over €300,000 would rise from 45 to 47 percent.
  • Taxes on capitals gains over €200,000 would rise from 23 to 26 percent.
  • Real-estate trusts, which wealthy Spaniards use to reduce their taxes, would be taxed at at least 15 percent.

The government expects around 36,000 taxpayers, barely .2 percent of the total, would be affected.

  • Taxes on assets over €10 million would rise from 2.5 to 3.5 percent.
  • Sugary drinks and single-use plastics would be taxed.
  • €600 million in tax breaks for private pensions would be cut.
  • So would tax exemptions for companies’ foreign dividends, from 100 to 95 percent.

Around 2,000 businesses would be affected.

Votes in Congress

The proposals are due to be debated in Congress in November, where the ruling Socialists and Podemos (We Can) have 155 out of 350 seats. They are counting on the smaller and regional parties which backed Pedro Sánchez’ investiture as prime minister in January to support them again.

Talks are also ongoing with the liberal-nationalist Ciudadanos (Citizens), who have ten seats, but they oppose tax increases.

The conservative People’s Party (88 seats) and far-right Vox (52) oppose the government’s fiscal plans altogether.

The Catalan Republican Left (13) could play a key role. It is not opposed to higher taxes, but its priority is securing more self-government for Catalonia. Sánchez has yet to make good on his promise to revise Catalonia’s autonomy.

Budget

In July, right-wing and regional parties voted for emergency fiscal programs, including loans to businesses and an extension of the short-time work scheme ERTE (similar to Germany’s Kurzarbeit).

But Spain is still operating under the 2018 budget of its last conservative government. Sánchez was unable to get a spending plan through Congress in 2019.

Outbreak

Spain has suffered the worst outbreak of coronavirus in Europe. It has had 1.1 million confirmed cases and 35,000 deaths.

Sánchez has declared a second state of alarm in an attempt to contain the spread of the virus. Nighttime curfews are in effect across Peninsular Spain. Regional governments are empowered to take additional measures without the need for judicial approval.

3.7 million Spaniards, 16 percent of workers, are unemployed. At the height of the first COVID wave, some 7 million relied on government assistance; a quarter of the labor force. Around 800,000 Spaniards were still on ERTE at the end of August. They are not counted as unemployed, although they are not working.

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