In recent days, there has been much debate about taxation in Spain.
No matter how many debates, press articles, blogs… there are, there will always be two sides: those in favor of higher taxes, to finance the services that provide us with a better quality of life in our country, and those who think that we could continue to maintain the services that provide us with this quality of life with lower taxes.
We could try to explain why one is better than the other, whether the other is better than the one, whether it varies according to the situation of the country… but I think it is much more constructive if we deal with reality as it is, describing what is happening at present.
Personal income tax is a tax levied on individuals resident in Spain. The states set what it is to be a resident. In the Spanish case, staying within the country 183 days a year.
As we have said before, we are not going to debate whether or not they are high tax rates. Let’s go further, analyzing our environment.
Andorra is the favorite destination of the so-called “youtubers” because of its low taxation. Its personal income tax is really low (10%).
We could say that Andorra can afford such low taxes because, after all, it is a small country, and therefore can afford to collect less.
However, without going much further, we have our neighbor Portugal (governed by a left-wing coalition), where non-habitual residents are taxed at 20%, in addition to offering foreigners a special income tax rate of 10% for 10 years.
Another example is Ireland (with a personal income tax rate of 23%). Ireland was one of the countries hardest hit by the 2008 financial crisis. Its policy focused on lowering taxes to encourage investment within the country, an action that has proliferated, being the country that has grown the most in the entire European Union.
We have other countries with a lower tax burden, such as Romania (27%), Estonia (33%), Bulgaria (30%), United Kingdom (35%)…
With this, I am not trying to say that lowering taxes encourages investment, and therefore promotes growth (which actually happens to some extent). What I am trying to say is that we are currently in a globalized world, where we could say that each state is a large private company, companies that try to compete with each other to see who gets more funding (taxation by society).
With the rise of teleworking, in the very near future, people will be able to choose destinations regardless of their geographical area of work, so that there will be a geographical redistribution of much of the population.
This is where Spain has to come in, providing a better fiscal climate to attract capital, investment and achieve greater growth,
We are an incredible country, being one of the countries with the highest quality of life, with an enviable climate, with a stable economy (as far as it is possible), with a very favorable geographical situation, with history, great cultural diversity, betting on social innovation (being pioneers, for example, in the LGTBI movement), with great landscape diversity, unbeatable tourist infrastructures, with a rich gastronomy, with the best beaches in Europe, great historical and multicultural legacy, with one of the best philosophies of life…
Do we really believe that, if we offer a good working environment, we will not be one of the pioneer countries in gaining competitive advantage? Of course we will.
High taxes, whether we are in favor of them or not, are a disincentive. We must attract capital, and not only that, we must retain it.
The Rubius controversy has provided a wake-up call, and we must react. This could be a great opportunity to change the tone of our country. Spain will be marginalized if it does not offer a ‘red carpet’ to companies and society as a whole.
Let us not only focus on lowering marginal rates, let us go little by little. We can plug the holes in the tax allowances, propose a flatter and more progressive Personal Income Tax (IRPF), without encouraging tax flight to other countries, grant really effective aid to companies to achieve their growth, thus having an impact on the improvement of the labor situation of Spaniards, review the VAT exemptions (both reduced and super-reduced).
In broad strokes, let us not focus only on black or white, there is also gray, and we must start painting now.
The choice is very clear; either we complain, or we get down to work and start competing. It all depends on us.
