Spain to hike taxes on companies, wealthy in 2021 budget

Spain's left-wing government announced plans on Tuesday to raise taxes on large companies and top earners to fund increased spending on social care and infrastructure in its 2021 budget as part of its progressive agenda. This budget is essential for the modernisation and recovery of our economy," Prime Minister Pedro Sanchez said in a televised statement.

Spain's left-wing government announced plans on Tuesday to raise taxes on large companies and top earners to fund increased spending on social care and infrastructure in its 2021 budget as part of its progressive agenda. With the coronavirus-battered economy expected to shrink by an unprecedented 11.2% this year, the government aims to boost next year's budget revenues by 6.8 billion euros, giving it more firepower to spend its way out of the crisis.

"This budget cannot be postponed. This budget is essential for the modernisation and recovery of our economy," Prime Minister Pedro Sanchez said in a televised statement. So far governments around the world have said very little about how they plan to pay for the cost of unprecedented levels of state support to virus-hit economies. Even the International Monetary Fund last week said the priority for now was to control the pandemic and then foster economic recovery.

The new budget is due to reduce tax exemptions for foreign dividends earned by big corporations to 95% from 100%, while real-estate investment trusts will face a minimum tax rate of 15% of earnings, Sanchez said. Previously, such companies benefited from several reductions. But some of the more radical measures agreed on when Sanchez's Socialists formed a coalition with the far-left Podemos party last year have been watered down.

A two percentage point increase on income tax for high-earners will only apply to those making more than 300,000 euros a year, up from an initial threshold of 130,000 euros. It is estimated to apply only to 17,000 taxpayers, but Deputy Prime Minister and Podemos leader Pablo Iglesias presented the hike as a first step to deeper reforms. "Those who have more will contribute more", he said. "Today we enter a new era in Spain's economic policy and definitively leave behind the neoliberal age of austerity."

The measures announced on Tuesday follow previously approved moves such as a so-called Google tax on revenues booked locally by large tech firms, which other European countries are also considering. With the revenue boost, the government aims to double the infrastructure budget and would increase civil servants' wages and pensions by 0.9%, in line with projected inflation, Sanchez said.

If the minority government can muster sufficient support in parliament, it could pass Spain's first budget since 2018, and the first full-year budget since 2016. In other years, budgets got rolled over from year to year, for lack of a majority. Barring any delays, the bill could come into force by the end of January.

Budget minister Maria Jesus Montero will announce further details of the plan later on Tuesday.