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Madrid region offers tax break to draw foreign investment

Madrid's conservative regional government on Tuesday unveiled a new tax break intended to attract overseas investment and act as a "counterweight" to the fiscal policies of Spain's leftist central government.

Madrid region offers tax break to draw foreign investment
Leader of Madrid Isabel Diaz Ayuso to offer regional tax breaks. Photo: ANDER GILLENEA / AFP

The move sets up a clash between Spain’s wealthiest region and Socialist Prime Minister Pedro Sánchez’s government ahead of regional elections in May and a general election expected at the end of the year.

Under the regional plan, foreigners or expatriate Spaniards will be able to deduct 20 percent of the value of their investments in real estate or financial assets from their income tax bill.

The regional government is introducing the measure because it is “worried” about the possible impact Spain’s new tax on “large fortunes” will have on overseas investment, regional economic policy chief Javier Fernandez-Lasquetty said.

READ ALSO: Why you should move to this region in Spain if you want to pay less tax

Last year Sánchez’s government introduced a temporary wealth levy on people
with assets worth at least €3 million. 

The tax will be collected in 2023 and 2024, and the money raised used to help households struggling with the effects of high inflation.

But the head of the Madrid regional government, Isabel Díaz Ayuso, of Spain’s main opposition Popular Party (PP), argues Sánchez’s tax policies will cause investment in Spain to “plummet”.

READ ALSO – EXPLAINED: What are Spain’s new regional tax breaks?

She said last week the tax break that her government was planning aimed to “send a clear message to the international investment community that there are institutional counterweights and an alternative to” Spain’s central government.

Polls show her PP is ahead of Sánchez’s Socialists but would struggle to secure an absolute majority in parliament.

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Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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