The Government is considering a further increase in the maximum personal income tax rate for capital income, which would fully affect the highest tax brackets, as outlined in its tax plan sent to Brussels this week. To do this, Moncloa is dusting off the Fiscal Bank Book that the Minister of Finance, María Jesús Montero, ordered in 2022, and hopes that it will serve as a guide for the next tax reform. Concretely, the fine print of the roadmap sent to the European Commission confirms that the Executive will approve tax measures “to make the tax system more efficient” and “increase revenues”. To do this, it will adopt the recommendations of the Committee of Experts aimed at “promoting equity”, to increase the ratio of income to GDP by 0.3 points between 2025 and 2031.
The aforementioned chapter of the White Paper proposes a reform of income tax to eliminate distortions that violate this principle and recalls that Spain is one of the only European partners that does not have a dual model. More specifically, it ensures that capital income is more concentrated in the upper part of the income distribution, which explains why it believes that “Higher tax rates on this income would have a redistributive effect”. For example, the Committee affirms that part of the remuneration received by directors and officers hides a component taxed as capital income, which is taxed below labor income. Those with income above 480,000 euros pay almost 40% of their income via capital income, which shows that the current structure of the personal income tax base is regressive and favors inequalities. The effect is more unfavorable for incomes above 600,000 euros. According to data from the Ministry of Finance, 55% of their income is taxed via the savings base.
This idea has already been defended by Sumar, who urged Montero to increase the maximum rate on capital income to 33% and to create a new section for labor income from 150,000 euros. With this, they predict that 500 million euros could be added every year. The two measures constitute a tax plan that the government partner aspires to promote in exchange for its support for the budgetary project, and with which it intends to raise 3.445 million euros per year.
This is not the only measure that could include the tax reform that the government is preparing. The structural plan reveals that part of the tax measures will aim to “support the energy transition”, an aspect influenced by the report of the committee of experts.
The basic document proposes creating new green taxes aimed at taxing plane tickets, the use of road infrastructure, waste, large industrial complexes or the extraction of water resources; a thorough review of environmental taxation with which it seeks to converge Spanish taxation with that of the Eurozone, and with which – according to their estimates – could seize between 6,000 million and 15,000 million euros.
“Environmental taxes are above all instruments which aim to respect the polluter pays principle”, affirm the experts who signed the White Paper. It is worth remembering that the EU collects half a point more than Spain for green taxes, or 2.3 points compared to the 1.7 points of GDP that the Tax Agency receives for this type of taxes. In fact, the Spanish tax system is the third in Europe with the least revenue from environmental taxes, just ahead of Luxembourg and Ireland. On the other hand, the pressure of green taxation in Greece, Croatia and the Netherlands generates revenues of between 3.4 and 3.8 points of GDP.
Currently preparing the future text, the Minister of Finance has several firm proposals to double the tax pressure on pollution. Ernest Urtasun’s people want Montero to assume an environmental solidarity tax for private planes, yachts, luxury cars and other luxury products, with which he would only collect 100 million.
Furthermore, in the details of the structural budget plan, the Executive sets as an objective “the impact of tax advantages”, without however providing more information on this subject. However, the work led by Professor Ruiz-Huerta – on which the future tax reform will be based – places particular emphasis on corporate tax. The report urges Moncloa to prepare a report on the tax benefits incorporated into businesses and to limit the validity of these tax benefits to a maximum period of five years.
Subsequent assessment
After this deadline, the Treasury must mandate an independent entity to assess whether the deductions are effective based on individualized analyzes and scientific criteria. They also insist on the fact that the results must be accessible so that the research community can debate them. “The new tax advantages would be introduced by default on a temporary basis and should only be confirmed after a positive assessment,” specifies the Committee’s opinion. The analysis recalls that the impact of services on collection is limited. Concretely, the total expenditure generated by these incentives in Spain amounted to 0.1 point of GDP in 2019. According to AIReF, of the total taxpayers entitled to a corporate tax deduction, only a third was able to benefit in whole or in part from these incentives. The agency specifies that the deductions applied would represent approximately a quarter of the accumulated deductions.
Among them, deductions intended for SOCIMI, SICAVs or companies that invest in R&D&I stand out. The latter applies directly to the amount of tax payable and not to the taxable base, thus reducing the amount of tax payable. Typically, the benefit covers 25% of expenses incurred in the tax period for this concept, but 42% could be deducted.
