Rajoy elbows individual investors from the market back to the banks


With a unanimous complaint, the financial City of Madrid has cast out in disbelief the coming increase of taxes on capital gains among president Mariano Rajoy’s worst finance decisions so far.

During the first year, capital gains will be taxed at the same income tax rate of the investor. This includes reimbursements from transfer of shares and investment funds, while interests, fixed income, and dividend income would be exempted.

“This is appalling news,” Banesto Bolsa commented, “individual investors will feel even less likely to participate on the stock market. Those who remain will see less incentives in doing so, and those who were making an effort despite losses and volatility will just leave.”

At ACF, analysts said it was difficult to quantity the impact of the new fiscal treatment and it could mean that an introduction of a financial transaction tax or FTT á la Hollande would be delayed. Even so, “it will harm BME (the company operator of Spain’s stock markets) because its tariff is progressive, that is, higher for lower volumes.”

The sale of shares is currently taxed at 21 percent if profits are below the €6,000 threshold, 25 percent when gains fall between €6,000 and €24,000, and 27 percent for larger sums (it was 21 percent, too, in 2011). In 2013, the tax rate will increase to a minimum 24.75 percent and up to 52 percent for year one, and back to today’s fiscal charge levels in longer term instances.

France’s particular FTT would charge a 0.2 percent on national share purchases when capitalisation value of the stock exceeds €1 billion, carried out on any market of the world and regardless the residence of the buyer. It may tax high frequency trading operations, too, but the percentages of daily trade volume that could trigger the penalisation haven’t yet been fixed.

No government seems willing to apply the actual FTT unless most neighbours follow suit, which makes sense, but partial versions are beginning to spread. Their success will depend on what the real aim is, which in most cases unfortunately stays in the shadows.

In Spain’s case, the probable result could be small investors getting their hands on bank deposits again. The so-called Salgado Law, which imposed on banks offering high-interest rate deposits a bigger contribution towards the Deposit Guarantee Fund of Credit Institutions, was repealed at the end of last August. Nevertheless, the new Spanish capital gains tax will not become a solution to the suspicions that banks have generated with their abusive behaviour (sales of preferred shares springs to mind).

Equally misguided was the recent short-selling ban in Spain and Italy if the purpose was to restore market confidence in companies affected by depressing domestic economies.

Governments will have only themselves to blame for detrimental consequences to the economy and the capital markets if they use fiscal policy as weapons of party-politics (taxing the affluent sounds trendy to a considerable number of voters) or as temporary plasters.

About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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