SPAIN: ‘Rich Must Share Cost of Crisis’

  • by Raquel Martínez (madrid)
  • Wednesday, October 12, 2011
  • Inter Press Service

At a time when austerity measures have slashed public spending on essential services such as healthcare and education, thousands of people in over 166 cities across Spain, loosely organised around the 15-M movement, have been calling for higher corporate taxes, so the wealthy can 'share the cost of the crisis.'

Disgruntled citizens also called for a referendum to decide on the advisability of constitutional reforms that established a cap on Spain’s public debt, which currently stands at 702 billion euros at an annual cost of 25 billion million euros, according to the Bank of Spain.

Despite these demands, the reforms were negotiated without a referendum.

The bulk of the country’s tax burden falls on the shoulders of middle- and working-class people, who currently fork out 80 percent of their wages in Personal Income Tax (IRPF), according to the Organización de Inspectores de Hacienda del Estado (IHE).

Francisco de la Torre Díaz, spokesperson for IHE, told IPS, 'The economic crisis has (exacerbated) tax disparities in two ways: firstly, through the increase in indirect taxes (like the Value Added Tax, or VAT) to 18 percent, which is regressive by nature; but mainly because of the significant decrease in corporate taxes.'

Last month, in what many believe to be a token gesture, the patrimony tax, or property sales tax, which was abolished by the government in 2008, was reinstated for the next two years to alleviate tax pressure on average wage earners.

But the added weight of this tax on the total taken in by the Agencia Tributaria (AEAT), an office similar to the Inland Revenue Department, is negligible — less than 0. 5 percent, according to IHE.

'Most (of the big) ‘Forbes magazine’ Spanish players are barely affected by this tax, since a large amount of their patrimony is not tributary,' Torre Díaz told IPS.

'The taxes extracted from the highest incomes earners, a large percentage of which are companies, have been steadily decreasing over the years,' Torre Díaz told IPS.

'Between 2007 and 2010, corporate tax collection had dropped by 64 percent, meaning the state went from receiving nearly 45 billion euros to less than 16 billion euros,' he added.

This represents a significant loss of revenue to the government, funds that could be utilised to subsidize the public programmes currently on the chopping block.

In addition, Observatorio de Responsabilidad Social Corporativa (Spain’s observatory on corporate social responsibility) estimates that a full 80 percent of the companies on IBEX 35, the stock market index of Spain’s principle stock exchange, have money in tax havens.

Susana Ruiz, policy advisor for Innovative Financing and Private Sector Campaigns at Intermón Oxfam, pointed out the dangers of promoting investment abroad by Spanish companies, while simultaneously maintaining lax standards for taxing them at home.

'Stronger accountability measures should be put in place to avoid tax evasion by these big companies,' she told IPS.

'Their dark structures not only allow the diversion of profits on which taxes should be paid domestically, but also encourage money transfers to tax havens, which enables corporations to dodge tax payments in developing countries where they are carrying out their main productivity or extractive activity,' Ruiz added.

A further cause for alarm is the lack of political will among the Group of 20 (G20) — representing some of the most economically and politically influential industrialised and developing nations — to bring an end to these fraudulent practices, which have dire ripple effects like massive drugs and arms trafficking.

The ‘country by country reporting requirement’, that demands that multinationals present detailed accounts for each and every country of operation, have not even been included in the G20 agenda for the next meeting slated to be held in France, Ruiz told IPS.

Aside from multilateral efforts, the Spanish government itself has considerable leeway to restock its state coffers, according to economist and development expert Manuel de la Iglesia-Caruncho,

He told IPS that according to the most recent figures released by Eurostat, the statistical office of the European Union, the average income of 27 EU countries rose to 35.8 percent of GDP in 2009, while Spain grew by just 30.4 percent.

Iglesia-Caruncho stressed the necessity for the wealthiest corporations to correct the country’s many deficits by paying higher taxes. Fair tax payments by corporations would lead to a reduction in the fiscal deficit, an end to runaway speculation in financial markets and an immediate improvement in public services, he said.

'But only,' he cautioned, 'on the condition that these additional resources are used efficiently in employment- and knowledge-generating activities such as investment in productive and social infrastructure, health, education, research and development (R&D) or the environment.'

Iglesia-Caruncho also challenged the dominant argument against tax increases — based on the notion that withdrawing resources from the private sector would deprive economic operators of incentives, thereby leading to an overall reduction in consumption — by pointing to the example of many Scandinavian countries that collect high taxes and still enjoy high growth and consumption.

These states, he added, are protected from market shocks and failures by properly redistributing social wealth.

Corporate adherence to fair tax standards will not necessarily lead to a contraction in economic activity, since 'aggregate demand is maintained by increasing public expenditure and encouraging economic operators to continue investing,' the expert told IPS.

The Spanish Parliament has currently been dissolved prior to the Nov. 20 general election. However, despite the period of relative government inactivity many believe that, at the very least, the crisis has sparked a lively public debate that has put the necessity of a fairer and more just tax system back on table.

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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