Aimed at those with holdings valued at €700,000 or more, the tax has been reintroduced at the behest of the candidate for Prime Minister, Alfredo Pérez Rubalcaba, who has been accused of introducing a populist measure to bolster his candidacy rather than seriously address the country’s economic problems. It has been pointed out that at best the tax is estimated to bring in the equivalent of 0.1% GDP.
The tax is not new and originated in 1977, being in operation until 2007 when it was effectively removed by being discounted at a rate of 100%. The tax was criticised as it affected disproportionately the middle-classes and didn’t impact on the extremely wealthy who typically manage their wealth via expensive and complex financial engineering.
However, the tax remained on the statute books which has permitted it’s reintroduction, although with a number of modifications aimed at reducing the inequalities inherent in the original formulation.
Firstly, as already stated, the exemption before which the tax applies has been increased to €700,000 along with an exemption on property of up to €300,000 which effectively removes those with a total wealth of €1,000,000 from the tax. The government believes that this will impact 160,000 people in Spain with an annual income to the State of €1bn.
An important point to note is that the tax has been ceded to the regional governments (in the same was as Spanish Inheritance Tax) which means that it is up to each of the 17 autonomous communities in Spain to decide whether to levy they tax, continue to discount up to 100% or change the thresholds. As a result, those regional governments which are controlled by the PP, the opposition party, are already saying that they will not implement the tax.
They do so on the basis that they see the measure as purely electioneering and counterproductive in that it will tax those who have already been taxed as well as cause capital to flee the country and benefit other jurisdictions. The measure is planned to be in force temporarily for the tax years 2011 and 2012.