Podemos – the hard-left junior partner in Spain’s coalition government with the Spanish Socialist (PSOE) – is calling for a new tax on wealth to help pay for the coronavirus recovery effort. Anyone with net Spanish assets worth €1m or more would get caught in the net, including thousands, or even tens of thousands, of foreigners with second-homes in Spain.
Podemos has presented a proposal to Spain’s newly established congressional ‘Committee for the Social and Economic Reconstruction of Spain’ calling for a new tax on what they call large or great fortunes (grandes fortunas) to replace the existing Spanish Wealth Tax (Patrimonio) so that “those who have the most can pitch in,” in the words of Podemos supremo Pablo Iglesias, who is one of Spain’s 😳FOUR 😳deputy prime ministers.
Although “great foruntes” suggests Podemos have the super-rich in their sights, it turns out they mean anyone with net assets in Spain worth €1m or more, which would include tens of thousands of second homes in nice parts of the country, many owned by foreign investors.
Take Ibiza, for example. According to the property portal at ThinkSpain there are 1,343 villas currently for sale in Ibiza, and 1,100 of them (80%) have an asking price of €1m or more. That’s just Ibiza.
When you think about all the prime spots on the Spanish coast in the Balearics, the Canaries, the Costa Brava, the North Costa Blanca, the Costa del Sol, Sotogrande, Tarifa, and the best bits of the Costa de la Luz, not to mention cities like Barcelona and Madrid, you realise there will be tens of thousands of Spanish properties with a value (at least pre-crisis) of €1m or more, many of them owned by foreigners.
“Progressive” tax on wealth to pay for coronavirus damage to Spanish economy
Podemos are proposing a “progressive” tax on net assets in Spain of €1m or more starting at 2%, and going up to 3.5% on fortunes of €100m or more.
“The party has estimated that the new tax will raise €11 billion, or 1% of Spain’s GDP, which is the equivalent of a third of Spain’s deficit in 2019, and more than double what the government spent on health last year,” explains the Spanish daily El Pais. Does this sound realistic?
So, if you have a holiday-home in Spain worth €1m mortgage-free, Podemos want you to pay €20,000 per year in extra tax. That would likely destroy the market.
The new coronavirus wealth tax bands Podemos propose are as follows:
- 2% p.a. on net assets worth €1m or more
- 2.5% p.a on €10m or more
- 3% p.a on €50m or more
- 3.5% p.a on €100m and up
“It’s fair that those who have the most should contribute in a special way to sustain those who have been most affected by the crisis,” said a party source, quoted in the Spanish press.
“There is consensus that instruments like a tax for reconstruction are needed so that those who have the most can pitch in, providing resources to the public coffers,” Iglesias has said. He went on to say in declarations to the Senate on Thursday “I don’t think anyone who has more than one million euros will struggle with an exercise in fiscal patriotism,” adding in an ironic tone “they are desirous of it,” the press reports.
According to Podemos, “the largest part of the tax would fall on the highest 1,000 fortunes,” but that’s unlikely. The 1,000 richest people in Spain will have their tax affairs nicely arranged to avoid taxes like this, or simply just move away, whilst the “largest part” of the tax would fall, as usual, on the tens of thousands who, for whatever reason, ended up with a valuable asset in Spain, but can’t afford to pay a tax like this, or the expensive tax-planning needed to avoid it.
As things stand, there is little chance of this proposal by Podemos becoming a reality. This move is mainly about positioning as high tax-and-spend with left-wing voters who they want to lure away from their coalition partners.
In fact, this proposal is nothing new. It was included in the Podemos electoral manifesto of ‘fiscal justice’ measures, but was left out of their coalition agreement with the Socialists. They are just taking advantage of the coronavirus crisis to wave around their rich-bashing tax proposals in front of their base.
PSOE government ministers have disowned the proposal, making clear it has little hope of prospering. “It’s a Podemos proposal, not a government proposal,” said one minister. “There are many other ways to make the rich pay more,” treasury sources are quoted as saying.
The new wealth tax being proposed by Podemos might not look very promising right now, but who knows what will happen as this crisis unfolds, pushing Spain towards bankrupt. Real estate wealth can’t leave, and foreign investors can’t vote, so it’s reasonable to worry that taxes on second-homes will go up whoever is in power, just more so if Podemos have anything to do with it.