The announcement by the Andalusian regional president, Juan Manuel Moreno, that the population would be granted 100% tax breaks on their wealth triggered a domino effect in Spain. “Andalusia has to look up to see who are the best and compete with them,” Moreno said last week, referring to the Autonomous Community of Madrid. He wants to follow the example of this province and not levy the wealth tax: “We need an equally attractive tax system,” Moreno said – and thus increased tensions between the left-wing central government in Madrid and the regions governed by the conservative PP.
Spain’s Social Democratic Prime Minister Pedro Sánchez therefore accused Madrid and Andalusia of tax dumping in order to attract companies from other parts of the country. The governing coalition of PSOE and Unidas Podemos has now responded by wanting to burden the rich more heavily in the future. Finance Minister María Jesús Montero announced the possibility of a special tax for large fortunes last Thursday. The proceeds are to be used to fight inflation. It is important that “we can finance the aid” that is intended to support “the middle class and the workers,” Montero told the La Sexta TV station.
To this end, the Spanish central government wants to additionally tax the richest one percent of the population from next year. The measure should initially be limited to two years and protect the income of the remaining 99 percent of citizens. “When we talk about the rich, then about millionaires,” said Montero, who initially gave no information on the tax rate and the expected tax revenue. However, the Association of Tax Experts of the Spanish Ministry of Finance (Gestha) expects that the revenue from the wealth tax will be higher than that from the existing wealth tax. Spain is currently the only EU country that levies a tax on all wealth of an individual. In Italy and France, on the other hand, only certain assets are taxable.
There is no legal definition of “large fortune”
The planned tax on the wealthy is to be passed by the Spanish parliament by the end of the year. So far, however, it is not known who will be affected by the special tax, as there is no legal definition of “large assets”. However, similar to the wealth tax, it could start from a net worth of more than 700,000 euros. However, it is up to the autonomous regions whether they levy the wealth tax or not. As a result, in Madrid and soon in Andalusia, this will remain on paper but will not be withdrawn.
According to the “Global Wealth Report 2022” According to Credit Suisse, there are 1.1 million people in Spain who have net worth of at least one million dollars. Data also shows that there are significantly more wealthy people in Madrid than in the rest of the regions. “Neither in the EU nor there should be tax havens in Spain,” criticized Finance Minister Montero.
But while the Spanish government is trying to get the money of the rich, some PSOE-governed regions are headed in a different direction: on Tuesday, the Valencian regional president, Ximo Puig, announced a cut in income tax, stressing that this would be in his If only “the middle and working class” would benefit. According to information from the Spanish daily newspaper El País The social-democratic regions of Castile-La Mancha, Aragon, the Canary Islands and Navarre are now also said to be considering tax cuts.
As recently as June, Prime Minister Sánchez had rejected a tax on the wealthy
Another obstacle the Spanish government is facing in introducing the tax on the wealthy is that the constitution prohibits double taxation: According to José María Mollinedo, secretary general of the Gestha, the tax on the wealthy will be a state levy , to deprive the autonomous communities of their jurisdiction. To avoid double taxation, the amount paid could be offset against wealth tax. Another possibility would be to levy the tax on high incomes rather than wealth, and to raise the tax rates on the highest income brackets and on high capital gains. In this way, according to the portal El Independiente around 115,000 people who claim to earn more than 150,000 euros a year will be affected by the tax on the wealthy.
As recently as June, Prime Minister Sánchez rejected a tax on the wealthy that his junior partner Podemos had been demanding for a long time. However, rising inflation, which is 10.5 percent in Spain and thus significantly higher than in Germany, has prompted Sánchez to rethink. According to the Spanish daily El País the wealthy tax could bring Spain around 1.5 billion euros. On Thursday, the government also wants to present a package of further tax measures that will go beyond the wealth tax and include a reduction for low incomes. A large part of the income will probably come from those regions that have recently reduced their spending: Madrid and Andalusia.