This is why we're proposing a wealth tax in Spain to help us out of this crisis
The Covid-19 pandemic has hit Spain hard. A decade of budgetary cuts to the country’s welfare system, in particular to healthcare, has exacerbated the crisis. Spain is a travelling hub and one of the major tourist destinations in the world. As a result, we are one of the countries hardest hit by coronavirus. There have been more than 27,000 confirmed deaths – and around 280,000 confirmed infections.
However, the Spanish government took prompt action and, after a very strict lockdown, the virus has been subdued and the unbearable stress on hospitals has been eased. The daily data now allows us to start to take stock of the damage caused and to plan for the future, while still keeping an alert eye on possible new outbreaks.
This necessary lockdown has brought, in Spain and in every country that has been forced to adopt this kind of measure, an intense economic and social crisis. Unfortunately, the pandemic arrived before the Spanish people had recovered from the failed and cruel austerity programmes imposed by the European troika during the financial crisis that began in 2008.
Fortunately for millions of Spaniards, this time things are different. In January, a new government was formed. For the first time since the restoration of democracy, Spain has a coalition government formed between two parties. On the one hand, there is the 140-year-old, centre-left Spanish Socialist party, which forms the larger part of the government. On the other hand, the four-year-old coalition Unidas Podemos-En Comú Podem-Galicia en Común. Its parent party, Podemos, was born in 2014 from the 15-M movement and other social struggles founded as a reaction to the profoundly anti-democratic, corrupt and unjust management of the previous crisis by the economic and political establishment.
Little did we know when the government formed that it would have to almost immediately face the worst pandemic that the world has witnessed in 100 years. Fortunately, the progressive agreement between the Socialist party and Unidas Podemos has informed the government’s response to the economic crisis caused by the virus, and, as a consequence, the direction taken has been the opposite of what the government did 10 years ago.
This time, we have banned evictions and electricity and water-supply cuts; we have protected workers from being fired by helping companies to hibernate; we have passed an extraordinary insurance policy for self-employed people; and we are about to put in place a minimum income for hundreds of thousands. We have built a social shield against the crisis.
It is clear that we have to maintain these safeguards until they are no longer necessary, but we also have to put in place ambitious public investment plans to modernise Spain’s means of production, create high-quality jobs and thus exit this crisis on a completely different trajectory to last time.
All of this is necessary and it requires an important increase in public spending, which in turn requires additional public revenue. In this matter again, Spain drags heavy stones from the past. Before the Covid-19 pandemic, Spain’s public debt and deficit were around 95% and 2.5% of GDP, respectively.
This means that we can temporarily increase revenue by issuing new debt, but our margins are much more limited than those of countries with better debt/GDP rate.
A second possible source of additional revenue is European stimulus plans and packages. Both sources are fundamental but temporary. If we are going to face a long reconstruction of the economy after coronavirus, we need to go from the temporary to the structural. And that’s how we arrive at taxes.
Another stone we drag from the past is that Spain’s public revenue is eight percentage points below the eurozone average GDP. Eight points! That’s more than €90bn (£80bn) every year that can’t be directed to our welfare system. Years of “ordoliberal” dogma have severely undermined our tax system and have also made it less progressive and thus more unfair, in direct contradiction of article 31 of the Spanish constitution (which calls for a “just and progressive system of taxation based on principles of equality”). This is why we agreed with the Socialist party, when the coalition government was formed, that we had to reform the tax system to make it more robust and socially just.
One of the most important points is the proposal to create a tax on wealth. At the moment in Spain, there is a tax on wealth of sorts – but it is ineffective because the regions (comunidades autónomas) can autonomously decrease it almost to zero and thus practise tax dumping. As a result, and thanks also to the rest of the tax system, inequality in Spain grew significantly during the last decade. Now the wealthiest 1% owns 25% of the country’s wealth, while the poorer 20% just owns 0.1% of the pie.
We are proposing that Spain puts in place an effective tax on wealth to generate over €10bn every year, around 1% of GDP. This can be done without taxing the middle class at all; it would be a progressive scheme, starting at 2% for net wealth over €1m – and concentrating most on the revenue of the 1,000 richest people.
Inevitably, this will lead to aggressive attacks on us from the far right and from many wealthy and powerful people. So be it. The challenges our country faces are breathtaking, the welfare and prosperity of the Spanish people is at stake and what needs to be done needs to be done.
Pablo Echenique is a scientist and MP for Unidas Podemos, who serves as the party’s spokesman in congress