Prime Minister Pedro Sanchez on Thursday said fiscal reform was “inevitable” if Spain was to deal with the economic crisis triggered by the coronavirus pandemic, pointing to tax hikes, notably for larger companies.
Sanchez also pledged 9.0 billion euros ($10.1 billion) for Spain’s regions to reinforce the public health system, which was stretched to the maximum by the epidemic which claimed more than 28,300 lives.
His remarks came as European nations were locked in talks over a 750-billion-euro rescue fund, that would predominantly benefit southern nations like Spain and Italy, two of the worst-hit countries in Europe.
“We will have to reduce public debt, we will also have to lower the public deficit and for that, we will have to increase the state’s revenue capacity,” the prime minister told LaSexta news channel.
Sanchez said Spain’s low tax income made it “inevitable that we will have to carry out fiscal reform” given that government revenues are so much lower than the European average — “seven percentage points lower than GDP”.
“We want to have a robust welfare state and we’re going to do that with fiscal justice,” which will mean “raising taxes on big companies and not on small- and medium-sized companies,” he said, without giving further details.
“Big companies have effective tax rates that are under 10 percent while smaller and medium-sized companies pay a lot more,” he said.
He also said he would seek to “accelerate” the imposition of environmental taxes.
Regarding income tax, Sanchez said his election campaign laid out the possibility “that the higher tax brackets could be expanded”.
Asked about an eventual hike in VAT, which has been sought by the Bank of Spain, Sanchez limited himself to saying “the most important thing is fiscal justice”.
The unprecedented recovery fund being discussed by European nations has drawn fierce opposition from Europe’s “frugal four” — The Netherlands, Sweden, Denmark and Austria — who have promised to fight deep into the summer to rein in the spending.
A key issue that needs resolving is whether to impose conditions on the beneficiary countries, such as budgetary reforms.
The Spanish government has insisted it will use the funds in a “responsible” way.
Sanchez also said he was hoping to meet with his Swedish and Dutch counterparts, Stefan Lofven and Mark Rutte, before a key summit in mid-July.
“We are aware that we have to carry out a whole series of reforms, many of which are already under way,” Spain’s top diplomat Arancha Gonzalez Laya said last week.