Spain creates a temporary solidarity tax on wealth

Spain announced a tax reform at the end of September, with a new solidarity tax on large fortunes and a reduction in income tax for small taxpayers. The news took the country by surprise, at a time when the regions are engaged in a battle of tax reduction announcements to present themselves as more attractive than their neighbors and encourage the installation of large heritages.

“It’s about adding a dose of social justice” and better distributing efforts by protecting the weakest, explained budget minister Maria Jesús Montero. The new temporary and exceptional wealth tax, announced for 2023 and 2024, will tax assets over 3 million euros net, or 0.1% of taxpayers, she explained, calculating that 23,000 people will be affected. . This should bring in 3.144 billion over two years, with the objective of helping to finance the shock absorber mechanisms deployed to mitigate the effects of the energy crisis and inflation which should reach around 9% for the whole of year 2022.

At the same time, the government is making a gesture towards the most modest and reducing tax on annual income by less than 21,000 euros, which should allow them to save 1.9 billion euros over two years. These measures are also accompanied by a tax boost for the self-employed and small businesses, while eliminating tax loopholes that favored large companies.

Defusing the tax dumping race

The device aims to deactivate as quickly as possible the race for tax dumping between the regions, which are trying to take advantage of their margin of autonomy to present themselves as more attractive than their neighbors in terms of tax, six months before the next regional elections. It was Andalusia, governed by the People’s Party, which led the way by announcing the total abolition of property tax, as Madrid had already done. With the idea in particular of attracting the Catalan fortunes strongly imposed by Barcelona. Other regions have continued, such as the region of Valencia, yet governed by a socialist.

It was to stem this movement that the government of Pedro Sánchez went on the offensive: since the regions decided to give up levying the tax on heritage, the central administration therefore created the temporary formula of a contribution of solidarity on wealth, which could be compensated for those who are already taxed on their assets in the regions which continue to apply the tax.

Consistency vis-à-vis Brussels

“When we are going to receive 140 billion from the European recovery plan, our policy must mark our effort and our fiscal responsibility, instead of sending messages of tax cuts,” insisted the minister, calling for consistency vis-à-vis -Vis from Brussels. “Faced with tax shamans, this government is applying selective and surgical measures,” she said. “Tax policy should not respond to whims but rather adapt to reality for a fairer distribution of burdens,” she said, recalling that the government’s support policies and tax cuts on electricity saved families and businesses 10 billion euros.

For his part, the head of government, Pedro Sánchez, defends a mechanism marked, he says, by “equity and social justice” in order to cover aid for the most vulnerable, and calls for opening a longer-term debate. “The question is to know what state of well-being we want, because we cannot claim to be at the level of the Nordic countries, with tax revenues specific to less advanced countries”,