Spain revives wealth tax plan amid crisis

September 27, 2011, 10:00 / Advisory / Jurisdiction: Spain, Source: Financial Times

Spain’s Socialist government has resurrected a hotly contested plan to impose a wealth tax next year, according to party leaders eager to spread the burden of austerity and reassure financial markets that the country will control its budget deficits.

Alfredo Pérez Rubalcaba, the Socialist party candidate for prime minister in November’s general election, said he wanted the tax to target “the biggest fortunes, not the middle class”.

Mr Rubalcaba, who is expected to be defeated by the opposition Popular party, added: “If I win, it will make possible employment programmes for the young.”

Like Italy, another big Mediterranean economy regarded as increasingly risky by sovereign bond investors, Spain has dithered for weeks about the merits of a wealth tax.

The government buried the idea as impractical some time ago, but is now expected to announce the restoration of the tax after a cabinet meeting.

Elena Salgado, finance minister, had complained that no wealthy Spaniards – unlike millionaires in France and the US – were offering to pay more tax. However, Joan Rosell, who heads the employers’ federation, subsequently suggested that those with the highest incomes should make sacrifices along with everyone else.

In 2008, its last year of application, Spain’s wealth tax raised about €2.1bn from 1m people, charging them between 0.2 and 2.5 per cent of their declared assets. When the tax is revived in accordance with Mr Rubalcaba’s wishes, it will be focused more tightly on the very wealthy and is likely to raise only about €1bn a year.

This largely symbolic amount, representing just 0.1 per cent of gross domestic product, is unlikely to reassure creditors nervous about a possible Greek debt default and its effects on other eurozone countries, including Spain. Mr Rubalcaba said it was necessary to “isolate” Greece, which was “infecting” other European economies.

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