Controversy Surrounds Spanish Tax Cut Vows
January 30, 2008
With less than six weeks to go before a hard-fought general election in which the economy has moved centre stage, Spaniards are being showered with promises of tax cuts. But as government and opposition compete with prospective tax breaks, the electorate’s response remains wary.
José Luis Rodríguez Zapatero, the Socialist prime minister who is seeking re-election on March 9, is facing a barrage of criticism this week after promising a €400 ($591, £297) tax rebate for 13m wage earners and pensioners. The measure is expected to cost €5bn, or one-quarter of the government’s fiscal surplus of 2 per cent of gross domestic product.
The prime minister said the rebate was aimed at “stimulating” Spain’s slowing economy. With rising inflation and mortgage payments he wanted to put more money in people’s pockets, Mr Zapatero told a Socialist party conference.
But Comisiones Obreras, the biggest trade union, called the €400 rebate “opportunistic” that smacked of being “a one-off payment for voting Socialist”.
“A blatant attempt to buy votes with public monies” complained Convergencia i Unió, a Catalan nationalist party, which said it would denounce Mr Zapatero’s “banana republic tactics” to the Spanish election watchdog.
Other groups, including some Socialist party allies in parliament, said there were better uses for the government’s fiscal surplus, such as education, home help for the elderly, and other social programmes.
While the opposition Popular party calls Mr Zapatero’s proposal “naked electioneering”, its own tax proposals are equally controversial.
In a bid for the female vote, the Popular party proposes that working women should pay less tax than men. The conservatives want to cut the tax bills of female workers by €1,000, arguing this will encourage women to continue working after they have children and mitigate the cost of childcare.
However, lawyers and feminists have attacked the proposal for being unconstitutional.
“The impact of tax cuts for women could have the perverse effect of lowering female wages even further,” said Asunción Ventura, a professor of constitutional law, writing in the newspaper El País. “Women might be forced to accept lower wages knowing that their tax bills would be lower.”
In addition, the two main Spanish parties say they will simplify the tax regime, abolish wealth and inheritance taxes, and lower the corporate tax rate, currently 30 per cent, to make Spanish business more competitive in European terms. The Popular party wants to raise the tax exempt threshold to €16,000 a year – a level it says would exempt four out of 10 Spaniards from paying income tax.
The Socialists say their measures would also exempt low wage earners from paying income tax.
Neither party had planned to fight the election over the economy. But the end of the Spanish property boom and the international credit squeeze has brought economic worries to the fore.
Copyright The Financial Times Limited 2008
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