Trying to close the income gap over GDP that today separates Spain from the European average by means of tax increases as the Government intends will have devastating effects in the medium and long term on the economy and on job creation. That is the warning issued yesterday by the Institute of Economic Studies (IEE), the laboratory of ideas linked to the CEOE, in the presentation of its White Paper on measures for tax reform, for which it has had the collaboration of 60 tax experts of recognized prestige.
Put into hard and fast figures, the IEE, which has stood out for being the most accurate institution when it comes to forecasting the evolution of GDP during the pandemic, estimates that a rise in fiscal pressure of three points of GDP such as the one needed to close the ‘gap’ with Europe based on fiscal measures would have an impact of five points of GDP on growth and it would take no less than a million jobs ahead.
This negative impact that the institution predicts in general if the Executive specifies its tax increase plan also extends to particular measures such as the famous idea of harmonize the taxes of the autonomous communities. The IEE calculates that the abolition by law of the fiscal benefits in the Wealth Tax and in the Inheritance and Donation Tax that exist in autonomous communities such as Madrid, Andalusia or others would subtract one point of GDP from the growth potential of the Spanish economy and even two points to the capacity of the Madrilenian.
The director general of the IEE, Gregory Left, maintains that the tax increase proposed by the Executive of Pedro Sánchez would be particularly detrimental in the current context of recovery, since the growth potential that can be lost is greater. «The data that we are learning indicate that the Spanish economy is recovering more slowly than other European economies and the policy of tax increases that is being carried out by the Government is one of the main explanations for what is happening. While other European countries have lowered taxes to allow their taxpayers and companies to adapt to the crisis, here they have risen three points of GDP. That higher fiscal pressure is behind our growth differential.”
Maximum tax rate
While the Government is maneuvering to establish minimum rates in taxes, as it has already done with 15% in Corporation Tax and as it intends to do with autonomous taxation of assets (Patrimony, Inheritance and Donations), the IEE White Paper advocates establishing a maximum rate of 50% on individual taxation, so that the Treasury cannot keep more than half of the income generated by a taxpayer, including their assets, in a specific year.
The measure would mean transferring to Spain a rule that is already in force in Germany – in fact, it was the one that forced the elimination of the Wealth Tax in the country – or in France, although in this case the limit is raised to 70%. In Spain there is a joint limit of 60% for the imposition of Personal Income Tax and Wealth, but it does not operate as such because the reduction to be made in Wealth is capped so that at least 20% of the fee is paid. «This can mean that in some cases 80%, 90% or even more than 100% of the annual income is paid, what is confiscatory», warns Izquierdo.
The proposal of the Institute of Economic Studies is based on the fact that any modification that is intended to be introduced in the fiscal framework must start “from the adequate diagnosis of the initial situation, from the comparative analysis and identification of the best practices and from an evaluation of the effects on the activity and the use of the proposed alternatives” and that the objective of any tax reform should not be to increase tax collection but rather to “improve its efficiency and competitiveness”.
To achieve this, the IEE White Paper not only proposes establishing a maximum limit on the taxes that can be charged to individuals, but also proposes reduce tax burdens on companies both for social security contributions, where according to the institute Spanish companies pay ten points more than their European competitors, and for Corporation Tax, allowing negative tax bases and other expenses to be offset.
In this regard, it also urges the Government to put the brakes on with green taxation so as not to deploy it solely and exclusively to get more income but to achieve the goals of reducing polluting emissions that should be its objective.
The ‘think tank’ linked to CEOE also advocates focusing the fiscal consolidation process from the perspective of cutting spending and not from that of tax increases, which affect the economy more.