Spain approves its wealth tax amid controversy

Editor’s note: This article was first published in September 2011 as day-of news from 16 September 2011, under the Zapatero government and ahead of that November’s general election. Its figures, including €1,080 million expected revenue and a €700,000 threshold, come from that announcement. Rajoy won the election and his government extended the tax; later rules have changed.

Government spokesman José Blanco has announced that the Council of Ministers has approved the wealth tax. With this measure, the government aims to raise €1,080 million in the 2011–2012 tax year. We now know that 160,000 taxpayers in Spain will be subject to it.

The wealth tax will only apply to net wealth of €700,000 or more, and from now on the exemption for a taxpayer’s main home will be €300,000.

The measure is controversial because the tax is being brought back by the same government that supposedly abolished it after calling it useless. However, as we argued in a previous article, this tax was never actually abolished: each autonomous community was simply given the option of applying it or not.

Rajoy disagrees with the tax, which he believes penalizes savers, arguing that nowhere else in the world is a similar tax applied. He has not made clear, though, whether he would scrap it if he reached the Moncloa (the prime minister’s official residence).

Rubalcaba, on the other hand, was blunt in his explanation, saying that the PP (People’s Party) would rather cut spending on health and education than ask those who have the most to make an effort.

Rubalcaba said he intends to turn it into a national tax instead of a regional one, as it is now. That would stop each autonomous community from deciding whether or not to apply it.

“Let’s see whether the PP-run autonomous communities give up the money, because if they do, they’ll have to explain why they are making cuts,” Rubalcaba insisted.

The only real takeaway from all this is that the government can reduce the public deficit in just two ways, through spending cuts or through tax rises. In this case, given the current situation, we assume that Spain will both cut spending and raise taxes.

Featured image: Irekia, CC BY 2.0, via Wikimedia Commons.