There is nothing more secure in life than death and taxes. " With this aphorism attributed to the American politician and scientist Benjamin Franklin, the former finance minister of the PP, Cristóbal Montoro, announced the biggest tax increase of democracy. It was 2012 and Spain was plunged into the abyss. The financial markets bet in tropel against the public debt, the risk premium, an abstruse financial concept that measures the risk of a country, created fear because it was uncontrolled, and became popular in the bars of the bars. Community partners were torn between letting the country fall or applying traumatic shock therapy in the form of austerity. A bitter treatment that had already been prescribed to Greece, Ireland or Portugal. To avoid the rescue, the PP raised the IRPF, VAT, eliminated tax benefits for companies in corporate tax, increased taxation on alcohol and tobacco, led to increases in municipal IBI and even approved a tax amnesty. In short, it squeezed all the tax capacity within its reach. It is true that when the tempest subsided, taxes began to fall. But the fiscal hack of 2012 passed into the annals as the biggest tax hike in democratic history.
Time has passed and, in just six years, that nightmare seems far away. After five years of recovery, the crisis seems a science fiction chapter. The GDP has recovered, the public deficit is falling, salaries begin to rise and the collection caresses record figures. But the consequences are still there: unemployment does not fall by 15%, inequality has been exacerbated and public services are still depleted by the cuts.
In this context, the Government has announced an agreement with Unidos Podemos to raise the IRPF to the high rents and the tax of societies to the big companies. In addition, it plans to approve two new taxes; one on financial transactions, which will tax the sale of shares, and another on the digital economy, the so-called Google rate. The PP and Citizens have launched a campaign against this fiscal shock. They argue that it could slow down the recovery, affect the creation of employment and discourage investment.
The fiscal offensive leads to several questions. How many taxes are paid in Spain? Do we contribute more than our community partners? And, beyond political considerations, what is the tax system that Spain should have? Before answering it is necessary to specify that something curious happens about taxes. They agree with the majority of citizens: everyone thinks they pay a lot for what they receive, and considers that it contributes more to the treasury than its neighbors. It is a mantra that extends regardless of whether the person is left or right. This is revealed regularly by the CIS surveys. And to justify one fact: more than 95% of Spaniards consider that there is a lot or a lot of tax fraud. To see if Spain is closer to being a tax haven or a confiscatory state, it is best to take a look at the rest of the countries. And the result of the ratio of tax revenues to GDP is 33.9% in Spain, compared to 40% in the EU. Among the large European countries, only Ireland has a lower tax burden (23.6%). In France and Denmark this rate exceeds 47% of GDP.
Spain collects little depending on the national wealth. If you want to homologate the rest of the EU countries you should get about six points more of GDP for tax revenues, the equivalent of about 70,000 million. "Spain is not only below average, but its taxes are among the lowest in the eurozone. They are even below countries like Slovenia and Hungary, and at the same level as the Czech Republic and Estonia, "says Ignacio Zubiri, professor at the University of the Basque Country, in an article on EU fiscal trends recently published by Funcas, the founding of Savings banks.
"The difference in fiscal pressure is no more than a reflection of society's preferences on the size that it believes the public sector should have," explains Rafael Domenech, head of macroeconomic analysis at BBVA Research. It specifies that in many cases, these preferences are conditioned by the efficiency of the institutions. Thus, countries with more fiscal pressure have been developing efficient policies for the provision of public education and health services for decades. "They have earned the trust of the taxpayer, who is willing to make a greater contribution because it is worth it. But cases of corruption do not help create this awareness, "laments Domenech, who recommends working to improve the efficiency of public administrations, and that these take advantage of the opportunities of big data and the technological revolution to improve.
The reason for the low collection capacity of Spain lies in the VAT and in the IRPF. Between both tributary figures they add more than 75% of the total collection. However, the perception is that the tax rates of these taxes are not very far from the European average. So, what happens? There are three explanations: on the one hand, the Spanish tax system is full of holes, with exemptions, deductions and other tax benefits where the collection escapes. It's like trying to fill a bucket with a strainer. Spain stops collecting 50,000 million per year for tax deductions, 25% of the total collection.
Although many think of companies, the truth is that VAT is the most patched tribute, with special regimes and exceptions with reduced rates. Eating in a three Michelin star restaurant or sleeping in a luxury hotel is taxed at the minimum rate of 10%, compared to the general rate of 21%. The tourism sector receives a privileged tax treatment, but there are also other benefited sectors. "Spain stands out together with Greece, Italy or Portugal for presenting the lowest levels of potential VAT collection in the EU, raising an average of 45% of their potential income," says a document from the Bank of Spain on the tax structure of the country , prepared in 2014 by the current governor, Pablo Hernández de Cos. Therefore, Domenech is in favor of working to increase indirect taxation (VAT and special) instead of taxing more directly. Precisely that is the international trend.
Secondly, there are large bags of fraud that coexist with tax regimes, such as modules, which encourage circumvention. When talking about tax fraud, many look at the big companies and high net worth, but the inspectors do not forget the retail among the professionals, the self-employed and small companies to explain the volume of the underground economy. It is common to hear in workshops, reforms, medical consultations or professional services the question of ¿with VAT or without VAT? And that denotes a lack of fiscal awareness, which is also reflected in the CIS surveys (57% of Spaniards think they pay a lot of taxes).
Next to system holes and to tax fraud there is a third factor: the tax bases – the total resources on which the taxes are applied – are lower in Spain. In the IRPF, for example, the rates have not stopped falling since the eighties. Since then, the exemptions have been extended and family deductions have been increased. In addition, the low labor participation of Spain and the high unemployment rate mean that the IRPF does not deploy all its firepower. "It is not solved by taxing more on high incomes, but by broadening the tax bases and limiting deductions," explains Ignacio Conde-Ruiz, professor of Economics at the Complutense University. "Raising taxes to large companies and high incomes is very popular, but it is not very effective in a globalized context. "He sells a lot politically, but he scratches a little if it is not done in a coordinated way in the international arena," adds Conde-Ruiz, who is the deputy director of Fedea, the foundation for applied economics studies. In reality, conservative parties tend to lower taxes when they govern and those on the left do not dare raise them, which they should do when they have power, he explains.
Technological tax abuses, who have taken advantage of international legal loopholes to minimize their tax cost, have aroused the mistrust of politicians and citizens. Executives of Spanish companies consulted, admit that these practices created by foreign corporations have damaged the tax reputation of all. And remember that there is tax competition between countries as a global race to offer tax advantages to attract investment.
The truth is that corporate tax collects in Spain 40% less than before the crisis. But his contribution is not far from the community average. Business sources explain that the current situation is not comparable with the boom in the real estate and financial bubble, when builders and banks chained profit records. "It's not the same Spain," they say. The recession has changed the business landscape. Although the total business results are already close to the pre-crisis level, 70% of the profits of the large Spanish multinationals come from abroad. And, in addition, these drag in their balance the injury part of the crisis, the so-called tax credits, which allows them to reduce taxes in the future.
The OECD has published the annual report on tax trends. "Countries have used recent tax reforms to reduce taxes on businesses and individuals with the aim of boosting investment, consumption and participation in the labor market, which began a couple of years ago," says the study. after analyzing the changes in the 35 most developed economies.
After this radiography of the Spanish tax system the question arises: how to improve it? There is an ideal model evoked recurrently by experts and academics. A decade ago the British Institute of Tax Studies (IFS) commissioned the Nobel Prize in Economics, James Mirrlees, to design an ideal, efficient and optimal tax framework. For four years, the prestigious academic worked with the best experts and the brightest minds in the country. The final result was published in 2013 under the name of Mirrlees Report. It is a voluminous academic work, which is an "ideal to strive for", but difficult to apply because of political constraints. The first point of the aforementioned study is categorical: "The best tax system would be the one that, for a given collection and redistributive objectives, optimizes the achievement of the remaining objectives, within the constraints imposed by the economic and political context and the availability of information. "
The report proposed a kind of fiscal minimalism. Eliminate all fiscal cracks to raise the maximum and unify all benefits. To this end, it proposed merging income tax with social contributions (as does Denmark) and establishing a single social benefit (dependency, pensions …) that brings together all existing ones. In the corporation tax it is recommended to eliminate all deductions except one for own funds, which would reflect the opportunity cost. In this spirit of simplification, advises a single tax on consumption tax (VAT and special) without exceptions, or privileges.
A similar study Montoro tried to do in 2013, creating a group of experts to outline a tax reform. The Lagares commission, baptized by Manuel Lagares, The economist who led the work, presented in 2014 a document with 125 recommendations to build the tax system of the future in Spain. The proposal was half-baked. The PP government ignored most of the councils. Before the imminence of the elections in 2015, he only applied some tax rebates.
The work of the commission, however, was ambitious. Its objective was to promote recovery, combat the public deficit, boost savings and bring more justice to the system. Lagares bet to reduce the types of income tax and companies in exchange for eliminating most of the exemptions, reductions and bonuses. It advised a single rate to tax savings income (dividends and bank interest) and abolish the regime of objective estimation and modules. In the VAT, he recommended abolishing exemptions, but defended a preferential treatment for tourism and housing. In addition, it included a package of measures to combat tax fraud and a powerful bunch of green tributes.
Despite being celebrated by the experts, it was left in a drawer. Neither the left parties nor the conservatives remember this great work on taxation. Because, at the end of the day, "taxes are what we pay for living in education," according to the plaque that crowns the headquarters of the US IRS, the equivalent of the Tax Agency. The sentence is attributed to Judge Oliver Wendell, who added: "The alternative is the law of the jungle."
It was from 1995 when the PP in the opposition began to sell that it would lower taxes when it came to power. There were only a few months left for the 1996 elections and the PSOE of Felipe González in the government was imprisoned by the demands of matching the public deficit to enter the euro. As of that year, each time that elections are held, the two parties that have governed Spain, PSOE and PP, resort to reductions of the IRPF to attend the electoral appointments. In 1999, José María Aznar approved a tax reform with wide advantages in corporate tax and presented the first large reduction of income tax. There was less than a year left for the legislative ones. During the election campaign he again promised a tax reduction. And four years later, before the 2004 elections, he took out another tax reduction. The socialist José Luis Rodríguez Zapatero also signed up for the car in 2008. He then lowered the income tax and approved the aid of 400 euros. In 2012, during the crisis, there were no fiscal promises. But in 2015, the Government of Rajoy also reduced taxation.