A capital idea
The Euro Zone

A capital idea

Last September, Andalucía followed Madrid's example and became the second Spanish region to scrap wealth tax

Mark Nayler

Friday, 19 May 2023, 12:53


As was evident on multiple occasions throughout the pandemic, the most powerful advocate of personal freedom in Spanish politics (and too often the only one) is Madrid's Conservative president, Isabel Díaz Ayuso. Now, in advance of regional elections across Spain next Sunday, Ayuso is reiterating one of her most successful formulas: low taxes, for both businesses and individuals. She thus highlights yet another legally questionable law passed by Spain's Socialist government, as well as the economic risk posed to the Spanish capital by a misconceived wealth tax.

Before December 27th last year, regional governments in Spain had the power to axe the country's anachronistic wealth tax, one of only three levies on an individual's total net fortune that exists in Europe (Norway and Switzerland have the other two). Last September, Andalucía followed Madrid's example and became the second Spanish region to scrap the tax on assets worth more than 700,000 euros, an entrepreneurial move which was predictably labelled "totally regressive" by Spain's minister for social security, José Luis Escrivá. Pedro Sánchez responded in a manner that might well be unconstitutional - he stripped regions of the power to waive the wealth tax.

Ayuso and around 60 families with Madrid-based businesses are challenging the wealth levy in court, arguing that it's confiscatory and violates the fiscal autonomy of Spain's regions. Her mantra that low taxes are an essential component of personal liberty is going down well with Madrileños, especially those with business interests: voter intention polls for next Sunday put the Popular Party first, around 20 points above its closest rival, a leftist coalition led by Más Madrid. The Socialists, who want to maintain the wealth tax, trail third.

There are also concerns over capital flight, one of the factors which has caused countries such as Denmark, Germany, France and Austria to abolish wealth taxes over recent decades. Reuters reported this week that one of Madrid's richest residents, the Argentine-born entrepreneur and billionaire Martin Varsavsky, will leave Spain if the current taxation laws are made permanent. Madrid's administration claims that the Spanish capital alone will lose 1.2 billion euros in foreign investment this year, only three billion less than the total amount the Spanish government hopes to raise from the wealth tax.

Fundamentally, this is an issue about central versus regional government and individual liberty versus state control. Writing in the UK's Daily Telegraph last weekend, Ayuso gave a definitive statement of her guiding principle: "This is freedom. Let the individual decide." Sánchez's motto, by contrast, seems to be "make as many decisions as possible for citizens, [supposedly] in their best interests". The egregious economic effects of that approach are still being felt, not just in Spain but all over the world. Here's hoping that in four years' time, Ayuso will be running for prime minister, not just president of Madrid.




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