Spain plans to hike taxes on rich and companies in draft 2021 budget

Spain plans to increase taxes on corporations and the wealthy to help fund greater spending on infrastructure and health and rebuild its pandemic-ravaged economy, according to the government's draft budget for 2021 presented Tuesday.

Spain plans to hike taxes on rich and companies in draft 2021 budget
A protest against health cuts in Madrid earlier in October. Photo: AFP

Public spending will be 10 percent higher than in 2020 under the draft budget which will include 27 billion euros ($32 billion) from a massive European Union coronavirus recovery plan, Prime Minister Pedro Sanchez told ahead of a cabinet meeting which is set to approve the plan.   

The amount of money allocated to public spending is “the most ambitious in our democratic history,” said Sanchez, whose Socialist govern in a minority coalition with far-left Podemos.

Spain, one of the EU nations worst hit by the EU by the pandemic, is set to receive a total of 140 billion euros in grants and loans over the recovery fund's 2021-26 lifetime, making it one of its biggest beneficiaries along with

The draft budget calls for higher corporate taxes on big companies, a raise in the income tax on high earners, and a hike in the value-added tax on sugary drinks.

The extra revenue will help fund a 151-percent rise in the public health budget, which will receive an extra three billion euros, of which 2.4 billion will come from EU funds to buy vaccines and strengthen the country's primary care network.   

“We are inaugurating a new stage in Spain's economic policy, which definitely leaves behind the neoliberal stage of austerity and budget cuts,” Sanchez's deputy and the leader of Podemos, Pablo Iglesias, said.

The budget plan will still have to be approved by parliament, where the government controls just 155 out of 350 seats.   

Passing an annual budget has become highly complex in Spain in recent years as the rise of new parties has led to an increasingly fragmented parliament.    

Sanchez's first term in office ended with a snap election last year when he failed to win support for his budget, and he has been governing since with a 2018 budget that has been rolled over twice.

The Spanish government said last month that it would have to suspend the fiscal rules EU-member states must normally meet, in 2020 and 2021, as a result of the pandemic's impact on the economy.

The annual public or budget deficit stood at 6.46 percent at the end of June and is seen rising to 11.3 percent at the end of the year.    

EU finance ministers agreed in March to suspend stringent rules on running public deficits in the bloc in to allow member states to spend freely to tackle the impact of the coronavirus pandemic.

READ ALSO: Why Spain is the only country in Europe where taxes are rising during the pandemic

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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).