Sánchez will charge part of the social measures of the investiture on high incomes

The economic promises made by the recently re-elected president, Pedro Sánchez, during his investiture session will be borne mainly by the richest taxpayers.. The socialist leader has committed, among other measures, to forgiving part of the regional debt, to make public transport free throughout Spain in 2024 or to extend the reduction in food VAT. A series of measures that will increase spending or reduce State income in a year in which Brussels will once again look at the Spanish public accounts with a magnifying glass.

Although the fine print of the Government's social agenda still needs to be known, the margin to draw on the checkbook without the EU taking action on the matter is limited.. Spain has committed to reducing the deficit to 3% of GDP next year and the Airef and the European Commission have already warned that to achieve this, the energy support package will have to be withdrawn completely.. Even so, in Brussels they believe that even a small additional adjustment would be necessary.

The only alternative to be able to adopt new measures is, then, to cut spending or increase income and the Government seems to be leaning towards this second path. “The rich, I'm sorry, have to pay more taxes than they pay until now. As long as we govern, they will pay more than the rest,” Sánchez concluded after announcing his economic proposals.

But how? Sánchez limited himself to saying that he will combat the underground economy, broaden the tax bases, increase the progressivity of personal income tax and apply a minimum of 15% in corporate tax on the accounting result.. Measures that appear already included in the Government agreement between PSOE and Sumar.

Increasing the progressivity of personal income tax will likely involve an increase in the rates paid by the highest incomes.. Last year, the Government already raised the rates on capital income above 200,000 euros. However, with this tax increase the expectation was to raise just 200 million euros more. The maximum rate that applies to these earnings reaches only 28%, compared to the 47% that applies to income from work that exceeds 300,000 euros.

PSOE and Sumar have also already announced that they intend to maintain banking and energy taxes beyond their validity period, which ends in 2024.. These two taxes have collected 2.9 billion this year, but it was already taken for granted that they would continue in 2024, so the fiscal impact of making them permanent would be perceived in 2025.. Furthermore, we must not forget that the two taxes are being appealed in the Constitutional Court, which has not yet ruled.

Regarding applying the 15% in Companies to large companies on the accounting result and not on the tax base, it is also not clear what effects it could have on collection.. The acting Secretary of the Treasury, Jesús Gascón, recently acknowledged that it is very difficult to make numbers given that this accounting base is agreed upon internationally and the results depend on what the different countries agree to.

It will be enough?

Although many details are still missing, the commitments made by Sánchez so far will have a limited cost. Of the more than 14 measures announced on Wednesday, those that will have a clearer impact a priori are free public transport for young people, minors and the unemployed and the extension of the food VAT reduction until June 2024.

The impact of expanding the food tax relief could be around 1.1 billion euros if we take as a reference the cost expected by Airef for 2023. The result of free all public transport is more difficult to estimate. The Government already counted in its calculations to balance the accounts with the fact that state-owned public transport will be free in 2024 and with another package of subsidies to reduce the prices of regional and local public transport. Together, these two measures amounted to around 1,440 million. For them, the free cost should be extended to the groups indicated, which without more details is difficult to approximate.

The forgiveness of part of the debt to the autonomous communities will not have immediate effects on Spain's deficit because the financial movements occur within the public sector. The fiscal rules measure the deficit of all administrations and not just that of the State, so transferring part of the burden to the central administration should not impact the imbalance in the accounts.

However, it may have indirect effects if Spain's credit quality is harmed by the decision.. Several credit rating agencies have warned of the “moral risk” posed by the precedent of forgiving regional debt.