Editor’s note: This article was first published in February 2013. It comments on the measures announced by Mariano Rajoy’s government in that month’s State of the Nation debate, including the 50 euro self-employed flat rate and the 45 billion euro supplier payment plan. All figures are as announced then; what was finally enacted may differ.
By Carlos Heras Rincón, CEO of Aspain 11 Asesores Financieros EAFI.
Following the announcement of the package of measures the government will take, made in the Congress of Deputies, we as financial advisers welcome them as positive, albeit with some scepticism. We believe that although a step forward has been taken, much remains to be spelled out, and we wonder why these measures weren’t adopted much sooner. Announcing them at this moment is no doubt a way of diverting attention, but we want to focus only on the positive side. Below we summarize them, with a brief comment that we cannot help making as part of this country’s business community, with the clear aim of adding value from a constructive point of view:
- Tax policies to support businesses and the self-employed:
- Not having to pay VAT until the invoice has been collected, a measure that will come into force on 1 January 2014. It was about time that 1,300,000 self-employed workers and more than 1,000,000 SMEs benefited from this: not only do they have no access to credit, but on top of that they have to pay tax on invoices they haven’t been paid. Why wait until 2014? Do we have time to look the other way? Let’s be braver in making the changes we urgently need.
- Deductions in corporate income tax and personal income tax (IRPF):
- Companies with a turnover of less than €10 million will be able to deduct up to 10% of reinvested profits from their gross corporate income tax liability.
- New companies will be taxed at 15% during their first two financial years if they make a profit.
- The self-employed will get a 20% reduction in the net income they earn during their first two years.
- Lump-sum unemployment benefit payments to unemployed people who become self-employed will be exempt from personal income tax.
- Deductions for R&D&I (research, development and innovation):
- Companies that reinvest, on condition of maintaining employment and hiring, will be entitled to deductions for technological innovation.
Our opinion of these measures is entirely positive, with one caveat: why not lower corporate income tax across the board for all companies with a turnover below €6 million, to try to reactivate the economy by encouraging consumption? Why has it taken us so long to adopt these measures?
Why don’t we analyse in depth, once and for all, everything to do with research and development, and draw up an action plan that both private and public capital can join? Demagoguery is entrenched in our country, but if we take a hard look at our R&D&I, we had better start trembling.
- Measures aimed at making financing more flexible and easing access to capital markets, and improving the Supplier Payment Plan (€45 billion): not just bank financing, which would be supported by a public system of guarantees, but also promoting financing through venture capital with bank disintermediation, making it easier to access the capital markets. They also floated the idea of a securitization fund for SME loans and the extension of the Supplier Payment Plan (it will cover invoices dated before 1 January 2012, with €2,700 million allocated).
The financing problem undoubtedly needs to be tackled. In an economy as dependent on banks as ours, which is undergoing a far-reaching restructuring, this must go hand in hand with the search for new sources of financing for businesses. We agree with the substance but not with the form. If there are nationalized banks, let them be used to do this quickly and efficiently, making sure the cost of financing doesn’t go up, because these measures have to be very light so as not to load struggling businesses with more costs. A lot of demagoguery so that we don’t focus on corruption. It’s a very good idea, but let’s tackle it properly once and for all. Still, let’s take the good part: “at least there are proposals that didn’t exist before.”
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Fighting late payment in commercial transactions: a maximum payment period of 30 days, extendable to 60 for private-sector transactions, with higher late-payment interest to penalize delays. Nothing to object to, although it should be developed further, with analysis and strategies depending on the drawee, drawer, debtor and creditor. And what about the debts of the public administrations, which they promise to reduce? Through what action plan? Who is going to keep an eye on our leaders, with regional powers as varied as they are in this patchwork of fiefdoms? Duplication has to be eliminated once and for all, and the country has to work as a single or federal state, but with the most important powers centralized.
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Incentives to reduce youth unemployment (until the unemployment rate falls to 15%):
- Companies with fewer than 250 employees that sign training contracts with people under 30 will get a 100% reduction in their Social Security contributions.
- Larger companies will get only a 75% reduction.
- Internship contracts for young people will be modified during the first year, with incentives if they are made permanent.
We agree with these measures, but they need to be combined with deeper tax reforms so that companies grow and job insecurity isn’t encouraged. And we also have to consider other age groups whose situation is very serious too. For example, what way out do we offer people aged 45?
- Encouraging entrepreneurship through the previously announced €50 Social Security “flat rate” for under-30s during their first six months. For the following six months, they will get a 50% reduction in their contribution base. Then, for the next 18 months, the reduction will be 30%, with the age limit extended to 35 for women.
We think these are very sound measures, but why only for young people? We would lower contributions across the board, regardless of age, for the next three years. We need to encourage consumption and help our business community, which needs us to get employment moving.
Finally, at Aspain 11 Asesores Financieros EAFI, as financial advisers and not politicians, we are making our contribution from a positive point of view, trying to shed light and offer ideas that favour the best possible business climate in the current situation. But the most important thing is still missing: lowering personal income tax and also adopting growth measures. We don’t want to sound too alarmist, but unless we hurry, the bailout will come, even if it is disguised.
Featured image: Barcex, CC BY-SA 3.0, via Wikimedia Commons.
