Spanish President Zapatero’s Socialist-run government is re-introducing the wealth tax, meaning higher ownership costs for many home owners in Spain.
The Spanish Wealth Tax, (Impuesto de Patrimonio), was eliminated by Zapatero at the start of 2008, bringing Spain in line with the rest of Europe in not punishing the middle classes with a tax on property and savings. The same Government is now resurrecting the tax, arguing the wealthy should pay more to dig Spain out of the fiscal hole this Government did more than anyone to put it in.
According to last week’s decree re-instating the tax, patrimonio will have to be paid on net assets above 700,000 Euros, with a main-home allowance of 300,000 Euros not relevant to holiday-homes.
Because this tax is devolved to the autonomous governments, tax-free allowances for residents vary by region, so if you are a resident, you need to check the situation with a local tax specialist.
Need I point out this tax will make Spanish property less attractive to foreign investors at a time when the Government should be doing everything to make it more attractive (say by reducing the costs of owning property in Spain)? In the light of this tax-increase, the Government’s road-shows to promote Spanish holiday-homes to European buyers will be even more ineffectual.
The real reason the tax is being introduced now, just before a general election, is to mollify the left-wing of the PSEO Socialist party and fire up the base. But the tax is bad for Spain as a whole, not least because:
- In the medium run tax revenues will fall as Spaniards take their savings elsewhere
- As a result, the taxes on consumption like VAT will have to rise, hitting the poorest hardest
- It’s a tax on savings, not income, that punishes prudence at a time when Spain needs to encourage it
- It raises the cost of owning a holiday-home in Spain, which will make it harder than ever to deal with the coastal-home glut that is one of the biggest problems facing the Spanish economy
- It is an unfair tax that you have to pay even if you don’t have the money
Zapatero claims that only the rich will pay, but it simply isn’t true. The very rich pay very little tax in Spain, leaving the middle-class to foot the bill, which will now include the patrimonio wealth-tax.
To make matters worse, the re-introduction of the tax has been surrounded by farce, with senior ministers contradicting each other as to who will have to pay and how much it will raise.
José Blanco, Minister of Public Works (Fomento) first said only 90,000 people would have to pay, but Rubalcaba, Minister of the Interior – and presidential hopeful – raised that to 200,000 to 300,000 people before Elena Salgado, Minister of Finance, popped up with a new figure of 160,000. Nor could they agree how much money it will raise this year, with Rubalcaba saying 1.4 billion Euros and Salgado saying 1 billion. Confidence-inspiring stuff.
The resurrection of patrimonio is a ‘temporary’ measure, say the Socialists, but as they are almost certain to lose the General Election in November, it doesn’t really matter what they say. What matters is what the opposition Partido Popular (PP) will do. So far Mariano Rayo, PP-leader, has made it clear he doesn’t like the tax, but he appears to be keeping his options open. My guess is he will keep the tax in place whilst pinning the blame for it on the Socialists.