At a time when all European countries have wisely reduced taxes in a bid to mitigate the post-pandemic burden and stave off soaring inflation, Spain is one of the few countries in the world to have dramatically increased its taxes, even creating new ones!
In today's blog post, I will try to analyze and explain why Spain is adopting such a counterintuitive approach to taxation in the aftermath of the Covid-19 global pandemic and at the doors of a new worldwide recession.
In effect, Spain has raised over the last 12 months 37 taxes, additionally creating 4 new taxes in 2022, such as the new solidarity tax for the rich. This fiscal voracity has translated into an extra €24 billion in tax revenue (an 8% increase) by rapport to the previous tax year. Not to mention how the government has actively suppressed a batch of longstanding tax allowanxes and tax breaks making it even more onerous for taxpayers.
This new study reflects how Spain’s IRPF (personal income tax), Patrimonio (Wealth Tax) and Impuesto de Sucesiones y Donaciones (Gift and Inheritance taxes) are the highest out of any European country.
Whilst most European countries have abolished Wealth tax (except in Switzerland and Norway) Spain has even created a new second national Wealth tax (Impuesto de Solidaridad a las Grandes Fortunas, or ISGF for short) which duplicates, and overlaps, the devolved competency regions already had attributed with their own wealth tax. So in effect, Spain has now two wealth taxes in place, at a regional and national level! Although the new wealth tax approved at a national level in 2022 is clearly unconstitutional, the newly appointed president at the Constitutional Court (chosen at the behest of Spain’s President) is now fighting tooth and nail to repeal all opposition so it remains in force.
Regarding Inheritance and Gift Tax, Spain has the highest tax rates in place in all of Europe, with the exception of a few regions which have suppressed it (i.e. Andalucia, Balearics, Galicia, Madrid, and Valencia).
Despite what our government claims, in that it strives to help and support the middle class, the results of the nefarious tax policy it pursues has resulted in the destruction of Spain’s middle class at an alarming pace.
Not content wit this, the government announced this week it will raise yet again taxes across the board in 2024.
This massive rise in taxes is being done in the context of the EU gifting Spain €80bn to combat the adverse effects of Covid-19 (no one knows what this money is being spent on and no one is held accountable for it) and the fact the government has not indexated taxes with an unbridled inflation of 25%, has resulted in an extra windfall for the government of €140bn (as no indexation inflation tax relief was given to ailing taxpayers, unlike in other EU countries).
In other words, the government received a windfall of an extra €220bn, and in spite of it all, it has still raised taxes dramatically (even creating 4 new ones).
Something is very, very wrong with Spain's finances.
But it doesn’t end there, on top of this, Spain has also dramatically increased the public debt by an extra €400bn over the last three years (an extra 30%), raising the total public debt of Spain to a staggering of €2 trillion, a ticking time bomb.
Why is all this being done? Where are these vast amounts of money being spent on?
Spain is spending €380bn every year on pensions and civil servant’s wages. There are over 4 million civil servants in Spain. Public wages in Spain are, on average, 32% higher than those in the private sector. Over 64% of civil servants make more than 21% of employees working in the private sector (this is crazy). Pensions and civil servants’ wages in 2005 accounted for less than 7% of GDP, now they are close to 15% GDP. Clearly, this is untenable on the long run.
In other words, if you want to live a good, relaxed life in Spain, and get paid (very) well, with huge holiday breaks all you need to do is work as a civil servant. Which goes on to explain why over 70% of young people in Spain, on finishing their university degree, want to study to become a civil servant. 74% of Spanish people believe civil servants lead a (much) better life than those in the private secort, who are underpaid and overworked by comparison.
It's only obvious, that if you offer a young person more money, less worked hours, higher holidays, and private healthcare (yes private, MUFACE, God forbid civil servants use public healthcare like the rest of us punters) why on earth would they pick working for the private sector? And this explains nicely why young Spanish people would rather be civil servants than working for the private sector.
The only tiny little insignificant crack in this master plan is who pays for all these public wages?
Now you understand what's behind the huge tax rises and the creation of new tax figures, it's all used to finance a growing house of cards. Not to mention, that civil servants are grateful voters to those that pay them. Unsurprisingly, 1 out 4 new jobs in Spain are created by the public sector, as civil servants, in a country with the highest unemployment rate of all Europe, out of all the OECD countries. I know, shocking, who could have possibly thought it?
If I were a cynic, I would be inclined to believe the government is misallocating the billions in EU funds to finance and create new jobs in the public sector, but surely that cannot be right, as those funds were earmarked by our EU Overlords to be used by ailing companies (SMEs) and millions of struggling families to help them cope with the adverse effects of Covid-19. Surely, I must be mistaken, silly me.
In Spanish we have coined a beautiful expression that sums up this reckless behaviour: “huida hacia adelante” which translates loosely as 'ploughing ahead with blinkers on'.
Despite all the nice words from our communist government, in that it will not raise taxes for the poor and middle classes, it is in fact doing quite the opposite, which is annihilating Spain’s middle class.
I apologize for self-quoting myself from another article: “... the strength of a democracy is correlated by the strength of its middle class. For it is the middle class of any country that undergirds the power of a healthy and balanced democracy, acting as its backbone. A dwindling middle class only spells political instability.”
This rash attitude of our autocratic communist government to raise more and more taxes, all the while creating new ones (!), and with unrestrained wanton piling more and more public debt on top - in a context of ultra-high interest rates - leads Spain to an unmitigated financial disaster.
If to a precarious financial situation, like the one described above, you also add on top a volatile political outlook, it leads Spain closer to Argentina, day by day.