The tax punishment of the so-called rich that characterizes Spain, whether by taxing their income or the mere possession or transfer of their assets , is far from being a new phenomenon, caused by the setback that the new Treasury measures will mean for these taxpayers . Quite the contrary, the most recent tax comparisons of the OECD show how our country is in the Top 5 in Europe in terms of the magnitude of the highest marginal rate that is applied in Income Tax.
Specifically, it ranks number four in the entire Old Continent, with an aggregate rate (adding the state section and that of the corresponding autonomous community) of 54%.
Spain is only surpassed from this point of view by Denmark with 55.9%, followed by France (55.4%) and Austria (55%). And that does not mean that all those countries are more rigorous in fiscal policy. In fact, this is how it is seen in aspects such as capital income. “Although it is true that the marginal tax rate in neighboring countries is higher than that in Spain, it is no less true that the tax pressure borne by income, especially capital, in our country is higher than the existing average in the EU-27”, according to Leonardo Neri, partner in the Tax area of Montero Aramburu and also co-managing partner of the firm.
Returning to the Personal Income Tax, the comparison with the average does not benefit us either, to the extent that the Spanish personal income tax exceeds it by more than ten percentage points.
It cannot be argued that the high levy is a characteristic of the large economies of the Monetary Union. Leaving aside the high Spanish and French maximum margin, Germany applies 47.5% to the highest income bracket, a rate very close to Italy’s own (47.2%).
Impositions higher than 52 percentage points
Outside the eurozone and the European Union, the United Kingdom also stands out with a maximum tax of 45%. The differences, as expected, become noticeably wider when the small economies of Eastern Europe and the Baltic countries are taken as a reference. Specifically, the comparison of the OECD reveals that the lowest maximum margins are found in Latvia (31%), Slovakia (25%), the Czech Republic (23%), Estonia (20%) and the especially striking 15% of Hungary.
Impositions higher than 52 percentage points are usually considered to be within the limit of confiscatory exactions, according to the prosecutors of the club of developed countries, but the truth is that Spain has several autonomies that are in that situation. This is the case of the Valencian Community, the territory that is precisely to blame (due to its high regional section) for reaching that 54% that highlights Spain among the most severe tax countries with the highest income levels.
Valencia will continue to lead
And the situation is not going to change in that territory. It is true that the Valencian president, Ximo Puig, announced changes in personal income tax but these will be limited to a deflation of the brackets for incomes below 60,000 euros per year. There will be, therefore, no moderation in taxes for high incomes. Moreover, it remains to be seen if the PSV government partners do not demand greater pressure on this type of taxpayer, as a bargaining chip to give the green light to the already announced deflation.
Beyond the Valencian Community there are still other territories that equal or exceed 50% in their largest section of Income Tax. They are Asturias, Cantabria, Navarra, La Rioja and Catalonia.
In this last autonomy, also highlighted for decades for its high tax rates, there will be no changes in terms of income, not even those of the lowest levels provided for in personal income tax. Not in vain the measures announced this week by President Pere Aragonès have been reduced to bonuses for school children.
Reduction of half a point in all the autonomous sections of the IRPF that decided this year in Madrid
But no one can deny that one can speak of the existence of two Spains from the fiscal point of view, especially with regard to the treatment of citizens with higher incomes and not all of them are governed by the PP. Below a rate of 50%, are Galicia, Castilla La Mancha and Andalusia with 47%; Castilla y León with 46% and, especially, Madrid whose marginal remains at 45%.
And the most recent announcements about changes in territorial fiscal policy allow us to predict that the differences will continue to deepen. In the case of Asturias and the Canary Islands, income tax charges have been lightened but with a very focused scope in rural areas at risk of depopulation.
A similarly restricted strategy is adopted by Aragón, governed by the PSOE, for areas with demographic problems. Much more general is the reduction of half a point in all the autonomic sections of the IRPF that Madrid decided this year; the lowering of the maximum rate from 48.2 to 47% in Andalusia or Galicia, which simplified its tax structure from seven to five brackets.
In recent months, however, it is in the field of rate deflation where the popular know that they can take greater advantage at a time when the 2023 elections are approaching.
On a national scale, the central government is reluctant to update Income Tax rates according to the current high level of prices. The Madrid Executive responded, in the last Debate on the State of the Region, advancing to this exercise the deflation of up to 4.1%, which is the ordinary level of growth of the salary costs of the INE.
But to consider Spain a rare bird in the tax treatment of wealth, we must look beyond personal income tax and also consider the effects derived from Wealth Tax.
Although this tax figure has a direct translation into English, such as Wealth Tax, the truth is that there are many foreign tax experts for whom this rate is difficult to explain.
Especially when it comes to its stubborn survival in a few European countries such as Switzerland, Norway and, of course, Spain. Among the analysts who do not see any utility that justifies the survival of this tax are, once again, the OECD experts, who in multiple reports not only criticize a performance that, in terms of collection, is negligible.
In addition, from the organization led by the Australian Matthias Cormann they assure that it has counterproductive collateral effects. Specifically, “tax avoidance and evasion behaviors have become widespread in this area.” Not surprisingly, its very start-up and the control it requires are extremely difficult.
Moreover, the specialist of the Tax Foundation organization, Daniel Bunn, highlights the significant setback that the Wealth Tax has experienced in recent decades on a global scale. Bunn reveals how there were eight countries that, within the OECD, applied it at the end of the 1960s when one can speak of a certain boom in this figure.
That number experienced an increase, until doubling its amount in 1996, but the decline has been unstoppable in subsequent times, until it became the residual tax that it now represents.
As a result, Bunn believes that the United States “must learn from these experiences” and put aside any intention of creating a similar tax figure. A similar reflection is the one that took place in France and that has led the country presided over by Emmanuel Macron to get rid of this figure.
In the neighboring country, it was estimated that, in the case of the Wealth Tax, the global net loss on the collection as a whole could be double the possible income obtained by this tax, as a consequence of the contraction of the activity that was would generate
The aforementioned expert from the Tax Foundation does not hesitate to consider reasonable the growing rebates that have limited the area of influence of the Wealth Tax not only on a national scale but also “regional” in countries such as Spain. Our country will soon have two autonomies, Madrid and Andalusia, which will have this tax annulled for all practical purposes.
But the truth is that the way of punishing wealth, in one way or another, is far from losing ground, as has been shown this week, with the announcement of a new Solidarity Tax for large fortunes that will be applied to large fortunes, from three million euros, with rates between 1.7 and 3.5%.
With regard to Inheritance and Donation Tax, the General Council of Economists highlights the reduction in the rate approved by the Andalusian Government and the 99% discount for groups with links I and II typical of Castilla y León.
problems for heirs
The situation in much of Spain, however, is far from improving. Not surprisingly, it should be taken into account that there are still autonomies that tax the mere transfer of wealth at unprecedented rates for Western economies, being above 80% in some cases.
Sources from several law firms in territories such as Asturias assure that the curious phenomenon of people who decide to renounce the legacies that correspond to them due to the impossibility of facing the tax burdens that they entail continues to be observed.
With regard to Property Transfers and Documented Legal Acts, Andalusia has lowered, effective this year, the general rate in both tax modalities.
While Galicia has done so specifically in the Onerous Property Transfers section. And before the 2023 elections there may be more movements. Not in vain in Castilla y León there is also speculation about a possible elimination of Patrimony in the future, as in other popular autonomies such as Murcia.
To complete the map of Spanish taxation, it is also important to take into account the concept of a high Spanish tax wedge, also above the OECD average. Is this tax concept equivalent to the sum of Social Security contributions and Personal Income Tax (IRPF)? in the OECD it accounted for 34.6% compared to 39.3% in Spain, which places our country in the group of countries that pay the most.
Some countries that present lower labor taxes than Spain are Denmark with a tax wedge of 35.2% or Norway (35.8%). Always continuing with the club statistics of developed countries, the fact that the tax wedge in Spain exceeds the average of developed countries is due to the social contributions paid by companies, which are significantly higher in our country.
Thus, in Spain, Social Security contributions by companies account for 29.9% of gross salary, according to 2020 data, compared to 16.3% on average in the OECD, making our country the seventh of a total of 37 analyzed with the social contributions in charge of the companies with the highest amount.