June 13, 2021

The Bank of Spain supports the Government’s tax reform and calls for more green taxes


The Bank of Spain has published its annual report this Thursday, which includes a series of reforms that it considers necessary to relaunch the Spanish economy after the pandemic. The text shows a clear harmony with the Government regarding the fiscal reform that the Ministry of Finance intends. The document analyzes the budgetary needs with which to stabilize the national accounts and coincides with the lines that the cabinet led by María Jesús Montero has transferred: improvement of green taxation, review of certain tax benefits and a boost in collection to get closer to the European Union.


The governor of the Bank of Spain asks to dedicate part of the European funds to introduce the Austrian backpack

The governor of the Bank of Spain asks to dedicate part of the European funds to introduce the Austrian backpack

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The report presented this Thursday by the body chaired by Pablo Hernández de Cos consists of four sections focused on the impact of the pandemic, the challenges of the economy, the effects on the productive sectors and, finally, an analysis of the situation of Empty Spain. The second of the sections is where the analysis carried out by the Bank of Spain on the country’s fiscal needs is framed. “A comprehensive review of all public expenditure and revenue chapters and a rigorous analysis of the implications that any fiscal action presents in terms of economic efficiency and equity is necessary,” the report states.

The Bank of Spain defends that the “necessary expansive tone” of economic policy to appease will have to give way to a “fiscal consolidation” that recovers the levels of debt and deficit prior to the crisis. In this sense, he advocates a complete review of all budget items, which must be accompanied by the publication of a series of reforms. Regarding the tax, the Bank of Spain endorses one of the arguments raised by the Government regarding the possible increase in certain tax figures: to approach the tax burden of the European Union.

The agency calls for an analysis of the causes that have led Spain to be in this gap with respect to tax collection in neighboring countries. In this sense, it points out the differences that exist with respect to income from indirect taxes, especially VAT, or Corporation Tax, two levies where Spain is at the bottom of the continent. To this he adds the need to “analyze the importance of tax fraud in these differences, and study its causes and the measures to mitigate its negative effects on collection and the necessary tax equity.”

The Government has placed Companies among the taxes it plans to raise, especially on large corporations, within the framework of the tax reform, and has also included measures against tax fraud, especially the law that is being processed in Congress, in the Plan of Transformation and Resilience that he presented in Brussels. Another of the measures included in that plan, the review of certain tax benefits, is also among the recommendations made by the Bank of Spain. The agency considers it “essential” to undertake this study, since “there is a wide margin for improvement.” “These benefits not only represent a very significant reduction in public revenues – in the average of the 2016-2019 period they represented an annual fiscal expenditure close to 5% of GDP – but, in some cases, they are not even adequately complying with the objectives for which they were designed “, points out the Bank of Spain.

Both the Government and the supervisory body also coincide in pointing out green taxes as one of the pending reforms in terms of collection. “Fiscal policy is a key tool in the fight against climate change and in promoting a more sustainable growth model,” says the Bank of Spain in the report. The document recalls that the collection capacity in Spain regarding this type of tax is “less than that observed in other economies in our environment” and argues that “it must play a prominent role.” He considers it a useful tool “both to deter less environmentally sustainable activities and to incentivize green initiatives and offset — with its income — the costs that the ecological transition may entail in the short term for some vulnerable groups.”

Taxation is just one of the areas in which the Bank of Spain has proposed reforms for the Spanish economy. Among other issues, it is committed to implementing measures to expand the rental offer, especially with regard to expanding the public park and adopting certain tax incentives for owners. Other areas are the improvement of investment in R + D + i, active employment policies or a change in the Spanish educational model at all levels.

But there is an issue in which the Bank of Spain pays more attention to the rest, dedicating a wide specific section, and in which it differs from the Government’s plans. This is the Austrian backpack. It is not the first time that the organization is favorable to implement this system that reduces the cost of dismissal of workers, in exchange for creating an account in your name in which certain annual income is generated and that accompanies you if you change jobs. business. The Bank of Spain takes up once again the proposal to dedicate part of the European funds to finance the costs of the implementation of this system.

The general director of Economy and Statistics of the organization, Óscar Arce, defends that he will make the degree of protection of dismissals “more just” and that “it would facilitate labor mobility”. The proposal defended by the Bank of Spain, despite proposing that European funds be used, does not appear in any of the sections that neither the Ministry of Labor nor the Ministry of Social Security have sent in the recovery plan sent by the Government to Brussels. Yolanda Díaz herself has been repeatedly opposed to this measure and only the person in charge of the Economy, Nadia Calviño, has raised in the past the willingness to analyze it.

The Bank of Spain details in its annual report an estimate of the cost that its implementation would have, which would be around 9,000 million euros for companies, having to assume the rights acquired in the past and the injection of money into the ‘backpacks’ of Workers. At this point, he defends that the State participates in this cost and uses European funds to do so. With this measure, the Bank of Spain argues that it would be possible to reduce the duality of the labor market in Spain, penalizing temporary employment. Ultimately, the organization defends, the cost of dismissal in Spain could be reduced by 50%. Arce himself recognized that this measure benefits more those who voluntarily change companies, by dragging that backpack, than those laid off.

Pension reform

The body also takes up in the list of reforms necessary in Spain those referring to pensions. “It is necessary to face the challenge that population aging poses for the public pension system,” says the Bank of Spain. The report rejects the proposal of Airef and the Toledo Pact to transfer some Social Security expenses to the State, since although it would reduce the deficit of the pension system, it would increase that of the public accounts. Thus, it proposes to strengthen the link between the contributions made and the benefits received – ensuring a level of sufficiency for those most vulnerable households -, increase the transparency and predictability of the system, and take into account considerations of intergenerational equity. For this reason, it calls for a “rigorous debate on the level of benefits desired and the resources necessary for its financing”.

The governor of the Bank of Spain, Pablo Hernández de Cos, has defended when presenting the annual report that Spain was already dragging since before the pandemic “the need to increase its growth potential, to correct certain existing dysfunctionalities in various markets for goods and factors. (those related to the labor market being especially relevant), to reinforce the sustainability of public accounts, and to tackle the important challenges related to the aging of the population, inequality and climate change “.

In this sense, the governor has defended the importance of Next Generation funds as “a unique opportunity” to promote the transformation of the economy, especially in the digital and environmental fields. “The selection of the projects should rest on an appropriate scheme of public contracting procedures and on an adequate design of the methodologies for the evaluation of the different initiatives,” Hernández de Cos has defended. The head of the supervisor has pointed out that these funds can favor the implementation of some of the structural reforms that the Spanish economy needs, being able to mitigate the costs of their application.

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