The PSOE and Unidas Pode parties, partners in the left-wing coalition that governs Spain, finally agreed to raise taxes for the richest and largest companies, as a way to close the account of the crisis caused by the coronavirus: it will be less taxation than expected the Government agreement between the two parties, but nevertheless relevant to guarantee the Budget, which abandoned periods of cuts and austerity. “We left the adjustment stage behind,” said the government president (prime minister), the socialist Pedro Sánchez. “Today we inaugurate a new stage that leaves the neoliberal path behind,” said the second vice-president Pablo Iglesias, of Vamos.
Sánchez says that after the “extremely severe blow of the pandemic”, the Spanish government could withdraw in cuts and move on. But the changes will ensure that the Budget has 10.3% more investment than the previous ones, including the advance of 27 billion euros [181 bilhões de reais] European plan. The strategy adopted by Spain is even defended by the International Monetary Fund (IMF), which is increasingly distancing itself from the orthodoxy for which it stood out in the most difficult years of the so-called Washington consensus. The multilateral body, which started the health crisis by urging countries to “spend as much as they could,” also recommends creating taxes for the wealthiest.
The agreement announced on Tuesday provides for an increase in income tax for large business groups, by limiting exemptions for dividends and profits generated by their participation in branches. In addition, the Government raises the individual income tax (IRPF) on capital gains by more than 200,000 euros (1.34 million reais) by three percentage points, which affects a very small number of taxpayers – saving the middle class. and the poorest – but with political and symbolic value in the midst of a crisis. The agreement also increases the IRPF for labor income by more than two thousand euros (two million reais), which includes a smaller number of taxpayers than the Government originally proposed, which were 130,000 (871,000 reais). The increase in income tax for those who earn more than 300,000 euros will affect 16,740 taxpayers, according to government sources, or 0.08% of the total number of taxpayers. Adding to the increase in the capital gains tax rate, the increase in the IRPF may affect 36,200 taxpayers, or 0.17% of the total, according to the Spanish Treasury.
The agreement also establishes a minimum taxation of 15% for listed real estate investment companies (Socimis, in the acronym in Spanish) – corporations whose main activity is the acquisition, promotion and rehabilitation of real estate -, a type of company that large companies capitals use to save taxes. Deductions for private pension plans will also be reduced, but only for higher contributions. Government members also agreed an increase of one percentage point in the property tax so that it has more than 10 million euros (about 67 million reais). The application of these resources, however, will be left to the regional governments. On the other hand, due to the economic situation, the minimum effective rate of 15% on corporate income tax, which was provided for in the Government’s formation agreement, was eliminated from the project. The Executive had already announced that the major fiscal reform that was planned will be for a more favorable moment for economic recovery, as explained by the Minister of Finance, María Jesús Montero.
The leftist Unidas Pode also managed to increase the IPREM by 5%, an index that determines a large part of subsidies and public aid. The Government will also increase salaries for civil servants and pensions according to estimated official inflation.
Pedro Sánchez detailed that the new Budget will result in a record public investment of 239.76 billion euros. Specifically, he anticipated that investment in education will increase 70%, with an increase of 514 million euros in scholarships and 1.5 billion in four years for the modernization of professional training. Likewise, there will be an injection of more than 5 billion euros in additional research and development, an increase of 80%. Investment in infrastructure will gain an additional 6.16 billion euros, an increase of 115%; and funds for industry and energy will increase by 5.7 billion euros. Sánchez also announced, among other measures, that aid to sectors particularly affected by the pandemic, such as trade, tourism and small and medium-sized enterprises, will grow 150%, with 1.3 billion more; for culture, an increase of 25.6% is expected; and the agribusiness will have additional resources of almost 790 million euros.
The two politicians looked euphoric in announcing the deal on Tuesday, but now it will be necessary to incorporate other members of the parliamentary coalition to approve it. The Government worked on the alternative of a pact with the centrist Citizens party, but in recent weeks it has been moving away from that possibility, which Unidas Pode has never seen with good eyes. Still, everything remains open, and there will still be a lot of negotiation with the benches. “It is a progressive budget, exceptional because of the situation and the volume of public investment it mobilizes. Its first objective is to reconstruct what the pandemic crisis took away from us. The second is to modernize our production model. And the third, to strengthen our welfare state, ”proclaimed Sánchez.
One of the Budget’s major bets is the decision to strengthen public health, which the pandemic has put at the forefront. “We will allocate 3.064 billion euros (20.54 billion reais) more to health, 151.4% more. One of the lessons we must learn is to strengthen public health, ”said the president.
In the budgetary agreement, although not in the accounts, the PSOE and Unidas Pode included a pact to regulate the control of rental prices, a theme on which the Iglesias group, which includes many senior executives from the Platform Affected by the Mortgage (PAH) ), has been pushing for years. “We must accelerate the objective that we have established to intervene in the housing market to regulate rental prices. We commit ourselves to bring to Congress within four months a law that allows mechanisms to limit or reduce rental prices in areas of stressed market, both in new and existing contracts. Spain will have the national housing law with the highest degree of public intervention in the rental market in Europe, ”said Iglesias. This reform will therefore arrive in a few months, but the pressure from different economic groups is very strong, and there is an important division in the Government on this matter, so that there is still much negotiation to see how regulation will finally be.
Sánchez and Iglesias presented the proposals for the Budget this Tuesday, in an act without questions or presence of the press, in the palace of La Moncloa. But it will be María Jesus Montero, the finance minister, who will explain the accounts to journalists after they are approved by the Council of Ministers.
The new accounts will offer an advance of 27 billion euros of European resources and will include other tax changes: VAT (consumption tax) of 21% on sugary and sweetened drinks; the creation of a new tax on disposable plastic packaging; fiscal policies verdes and changes in direct and indirect taxation. This Monday, PSOE and Unidas Pode approved the regulation of rental prices and reached an agreement to improve the regulation of the minimum vital income, the last two cables loose before being able to materialize the draft Budget. Once the preliminary draft of the new accounts has been sent to Congress, it is estimated that its first vote in the plenary will be in the week of 11 and 12 November.
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