Spain Wants A More Efficient Tax System- But Will It Be Socially Equal?

This fiscal reform could be one of the most remarkable in Spain’s history, comparable to those of XIX century performed by the economist Ramón Santillán, who also created the seed of today’s Bank of Spain, or the transition to democracy’s.

Furthermore, it may have a couple of details in common with next reform. The oldest also aimed to avoid a lot of tax rates that contributed with little collection. The most recent system shared with the current reform a much more, let’s say, trivial issue: financial expert Manuel Lagares was behind reform’s initial proposals.

Spain’s tax system is tangled up in a tax rates’ net which render low returns in terms of collection. For instance, along with tax rates covering all the country, Autonomous Regions have deployed aside about 80 regional taxes. Meanwhile, exemptions reach to more than 1,000, even surpassing the UK, which being the European country with the highest freedom from taxation, created an office to get rid of 1,040 forms of deductions.

“At the moment, personal and corporate income tax as well as VAT have been the only rates working more or less efficiently in Spain, but most of them lacks of collection power.  The question now is trying to simplify the system in order to a greater efficiency,” a financial expert admitted to The Corner earlier on Friday.

The Spanish government’s intention is to have fiscal reform in force by next year’s beginning. What they currently have in their hands is just a 444 pages report with 270 ideas summarizing 125 proposals for the reform. The experts committee conducting the report has been led by financial expert Manuel Lagares, who has anticipated that their proposals involve a comprehensive review of the whole tax system.

A very relevant point in Spain’s fiscal reform implementation will be its ideological approach. In theory, the new tax model would aim to achieve mainly two goals: enabling economic agents to take decisions at the expense of political leaders and at the same time boosting social equality criteria. Only time will tell if both really convene.

“I think the government will bet on the first one. Of course they will announce an increase of tax exemptions in order to promote middle classes’ access to housing market, banks financing or public services, but the reality is that for instance prices of basic education services have grown by 30% in a context of deflation,” the financial expert explains.

He also mentions the removal of payment in kind that many Spanish companies use to compensate their employees. These so-called “social benefits” include restaurant and nursery tickets, which for many Spanish families mean important savings. This also would involve finishing a sector which is transparent, far from informal economy, and losing corporate taxes as well.

“Exemptions must be studied very closely.  Fiscal policies can never ignore sustainability or work-life reconciling policies because it could even damage productivity. In the current situation, Spanish economy needs incentives for employment, youth, quality of labour force or further specialization, and some of the reform’s measures do not follow this argument,” the Spanish economist concludes.

Along with financial, labour and energy reform, fiscal changes were included in the list of southern European countries’ commitments to overcome the economic crisis. In fact, the rest of peripheral euro zone’s fiscal changes walk over the same path of Spain’s. Real harmonized fiscal union scarcely reaches to commerce transactions and taxes such as the VAT or those affecting energy prices or special goods, but ignore matters like job mobility or sustainability.  As our sources put it,

“It is increasingly difficult to get fiscal harmonization in the euro area due to the necessary clause of unanimity. Any country can become Trojan horse for UK’s aims to refrain the progress of European Union’s project.”