The Government has given the green light to the most expansive accounts in history, those that have the highest social spending recorded in budgets, financed with a tax increase as has not been seen since 2012. The fiscal menu points to large companies, high incomes , sugary drinks, plastics, diesel or assets, all to cover, as announced by the Minister of Finance and Government spokesperson, María Jesús Montero, in a subsequent press conference “the largest social expenditure in history.” This designs expansive accounts, where social outlay shoots up to a whopping 239,765 million euros.
The accounts include the revaluation of pensions and payroll of public employees of 0.9%, and 1.8% in non-contributory, which receive about 450,000 pensioners. Social services increased their item by 70.3% and Dependency by 34.4%, including an increase in investment, fueled by 19,600 million euros.
All this will bring the deficit to 7.7% of GDP, a reduction compared to 11.3% in 2020 due to the growth of the economy, despite higher spending. Why revenue won’t cover this barrage of measures. Curiously, the tax increase will be less than the one initially estimated by the Executive in the budget plan, after the negotiation between Podemos and PSOE. As a result, the spending ceiling or non-financial spending limit has dropped by 1,641 million compared to what was approved barely two weeks ago, to 194,456 million. Some cited measures no longer work and instead of the 6.8 billion that it estimated to collect two weeks ago, the tax increase remains in 4,223 million euros, 1,862 with the increase in taxes contained in the accounts. Along with these will be the Google rate (933 million), the Tobin rate (850) and the new tax on plastic packaging (491) and the 828 million of the new anti-fraud law. This adjustment will have an amplified effect on activity at a time when it is in recession.
Finally has been left out, among others, the increase in VAT on Education and private Health. How ABC progressed Nor will the promised reduction in Corporation Tax for SMEs go. But it does include a wide menu of tax increases: from diesel to insurance, large companies or high incomes.
More tax increases in the future
Because the bulk of the coming tax reform is postponed, entrusting a committee of experts with a proposal to be approved once the coronavirus crisis is overcome. For the moment, the diesel tax will be raised, the Corporation Tax on the profits of subsidiaries of those companies that invoice more than 40 million euros – with a transition period of three years for the rest -, an increase in personal income tax to income over 200,000 euros, the insurance sector premium that goes from 6% to 8% and VAT on sugary drinks, which jumps from 10% to 21% to enter 400 million euros and following the health recommendations of international organizations.
Personal income tax on income above 200,000 euros
Thus, income from work above 300,000 euros, the rise will be two points, going from the state marginal rate from 45% to 47%. This last increase affected incomes above 140,000 euros in the previous 2019 Budgets that Congress overthrew, and increased to four points (to 49%) for those of more than 300,000 euros. Finally PSOE and Podemos have reached a sort of intermediate solution with a political impact greater than the tax collection: it will barely enter 49.5 million, it will affect 36,197 taxpayers, 0.17% of the total.
As it also has a political value and not so much tax, the rise in the Wealth Tax of one point to those who earn more than ten million euros. the Fiscal Authority, would have entered between 8 million and zero euros compared to the 339 million estimated by the Executive. As Heritage depends on the communities, these are the ones that must approve the rise and not the State, which deflates the collection forecasts. The minister herself has admitted that each community may or may not apply this measure and that really, until the reform of regional financing, there will be no effective changes. On this occasion, in fact, it has not announced any collection estimate. What will have an effect is that The Wealth Tax is indefinitely extended, which until now, had to extend each budget.
More taxes on individual pension plans
The tax increase will come mainly from the review of the taxation of pension plans. The budgets will limit the reductions in personal income tax for individual pension plans from a maximum contribution of 8,000 euros per year to 2,000, while collective plans will rise from 8,000 to 10,000 euros. Of course, the income will not come until 2022 -because it comes from the income statement- and will amount to 580 million euros.
1,520 million increase to large companies
The one that does go is that of insurance premiums, which increases its rate from 6% to 8%, a measure that the Minister of Finance has justified in that “it has not changed since 1998”. Because it will be the companies that will pay most of the increase, of the 1,520 million that 1,739 companies will pay, 0.12% of the total, which will pay more corporate tax by limiting the exemption on dividends and capital gains from 100% to 95% in subsidiaries, both exterior and interior. The measure will affect those with a turnover of more than 40 million, opening a transition period of three exempt years for the rest.
Diesel tax hike
Another 500 million will be collected from the increase in the Hydrocarbons Tax on diesel, where the state rate goes from 30.7 cents to 34.5 per liter. This measure was not to the taste of Podemos, but the PSOE has included it. Montero has specified that the professional and subsidized diesel will not suffer variation, so it will not affect transporters.