The Spanish Government Tax Drive Bogs Down

Left opposition party threatens the Spanish government to derail the coming budgetLeft opposition party threatens the Spanish government to derail the coming budget

The attempt to tax banks, large corporations and targeted polluters for filling the pension gap and increasing covering social spending, seemed a cunny initiative squaring the circle. On top of getting extra money, imposing a burden on the well-off always prompts widespread popular support. An outcome all the more welcome when the general elections loom close ahead.

The government soon caved in to bankers’ stiff opposition realising they would shift every single penny charged on them into harsher credit conditions and commissions, hurting ordinary people. Not a good idea upon second thoughts.

Environmental taxes will have to wait for the harmonised guidelines currently discussed in Brussels. The only open option seems a minimum rate, say 15%, applicable to big firms’ profits regardless of their actual tax bill. Much ado about nothing, as Shakespeare would put it.

Much to government’s dismay, its competing party in the left-wing jumped in, threatening to derail the coming budget unless a huge tax hike took place. Podemos has targeted the personal income tax requiring a clampdown on those earning beyond 60,000 euros per year, depicted as wealthy people deserving a haircut close to the skull. In supporting such an unmitigated assault on the middle class, they claim wholly unjustified that marginal rates on incomes beyond that ceiling may stand at a flat 45% level, thus inferring that everyone falling within this bracket pays the same percentage. They grossly ignore or conciously overlook that earning 60 thousand involves an effective rate close to 25% while those benefitting from double that income pay slightly more than 30%.

Podemos has forced the government to engage in face-saving talks knowing in advance that Parliament will refuse to endorse any personal income tax hike. Yet, heralding potential abuse on taxpayers doesn’t seem the best way for cajoling voters. The Spanish government may face a severe backlash by opening up a debate it is bound to lose. The sooner it closes the door, the better.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.