February 28, 2024

Spain to Reinstate Wealth Tax It Dropped 3 Years Ago

MADRID — The Spanish government plans to reintroduce on Friday a wealth tax that it scrapped just three years ago as it scrambles for ways to reduce the budget deficit and avoid becoming the next victim in the European sovereign debt crisis.

Elena Salgado, the finance minister, explained the tax shortly after Spain completed a successful bond sale on Thursday. She estimated that the tax could yield about 1.08 billion euros (about $1.5 billion) in additional revenue from some 160,000 of Spain’s richest taxpayers, those with more than 700,000 euros in declared assets.

In 2007, the last year that the wealth tax was collected, revenue from the wealth tax reached 2.12 billion euros, after more than 900,000 people were charged 0.2 percent to 2.5 percent of their declared assets.

The Spanish government removed the tax in April 2008, shortly after José Luis Rodríguez Zapatero was re-elected as prime minister. Its reintroduction is likely to be the last legislative measure taken by the Socialist government before a general election on Nov. 20.

Opinion polls indicate that Mariano Rajoy, leader of the main center-right opposition Popular Party, will defeat the Socialist candidate, Alfredo Pérez Rubalcaba, and replace Mr. Zapatero as prime minister.

As it fights to regain the confidence of financial markets, Mr. Zapatero’s government has pledged to lower the budget deficit to 6 percent of gross domestic product this year, from 9.2 percent last year.

However, that target — still double the maximum that countries in the euro zone are supposed to meet — was set on the assumption that the economy would grow 1.3 percent this year. The most recent data suggests that growth will in fact fall short of 1 percent for the full year.

Even though the revived wealth tax will be more narrowly focused than the previous one, the plan has added to tensions over fiscal strategy between the federal government and regional governments that will be collecting the wealth tax on behalf of Madrid. Economists have also questioned the benefit of such a narrow tax — it will affect about 0.7 percent of Spanish taxpayers — at a time when the euro crisis is deepening.

Some regional governments controlled by the Popular Party have already declared their opposition to collecting what they consider to be a misguided wealth tax. Mr. Rajoy, however, has refused to say whether he would abolish such a tax if elected in November.

Most regional governments are expected to fall short of their budget deficit targets this year; only eight of the country’s 17 regional governments met last year’s target. Fitch, the credit rating agency, lowered the ratings of five regions this week, warning that “considerable efforts” were still required “in the area of cost control.”

On Thursday, Spain sold 3.95 billion euros of bonds maturing in 2019 and 2020, just short of its target of 4 billion euros. The yields remained near record highs. The bond due Oct. 31, 2020, was sold at an average yield of 5.16 percent, compared with 5.2 percent when it was last sold on Feb. 17. That was also the level at which it was trading on the secondary market before the auction.

The auction attracted twice the number of bids accepted, a level of demand that “compared favorably to the last two Spanish auctions,” said Chiara Cremonesi, a fixed-income strategist at UniCredit. “Taking into consideration the current environment, the auction result was not too bad over all.”

Article source: http://www.nytimes.com/2011/09/16/business/global/spain-seeking-new-revenue-to-reintroduce-wealth-tax.html?partner=rss&emc=rss

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