| Thursday, May 20, 2010

Things are going to get worse for businessmen and investors in Spain. It seems Zapatero’s government, hot on the heels of last week’s announcement of 5% cuts in civil service wages, the cancelling of the €2,500 ‘baby cheque’ and the freezing of pension increases from 2011, is to increase taxes on ‘high earners‘.

It’s unclear as yet where the fiscal axe is going to fall, but Zapatero’s definition of ‘high earner’ might not be yours or mine. I think it will fall lower than higher so that he can satisfy the left-wing of the PSOE.

If commentators in the UK were aghast at former–chancellor Alistair Darling’s high–earner watermark (50% above 150,000 GBP), wait until you see how much the current Spanish government sees as being too high: €60,000 or €70,000 are the figures being talked about in the El Economista article, given that: ‘only 4% of 18 million taxpayers in Spain earned more than €60,000 in 2007′.

The Spanish government seems unlikely to touch the 1% corporate tax paid by the SICAV investment vehicles used by Spain’s biggest fortunes (normal companies pay between 25% and 30%, although a 5% reduction for small– and medium–sized companies has just been approved for 2010).

I think when you look at all the different proposals, reductions and increases, though, two things spring to mind: there doesn’t seem to be any real coherence behind the moves and the government certainly doesn’t look like it wants to encourage economic activity, entrepreneurs and job creation.

They should lower taxes to encourage more business people to create and grow their companies. More companies and self–employed businessmen might join Spain’s formal, tax–paying economy like that, too.