PSOE and Sumar Government Agreement Includes Ambitious Tax Reform
Objective: Increase State Resources to 46% of GDP
In the recently presented government agreement between the Spanish Socialist Workers’ Party (PSOE) and Sumar, a tax reform is included that aims to significantly increase revenues. The document, presented by acting Prime Minister Pedro Sánchez and Second Vice President Yolanda Díaz, reveals an objective of up to €40 billion in additional resources.
The agreement builds upon the measures implemented in the previous legislature and the work of the Commission of Expert Individuals. It states that a comprehensive reform of the Spanish tax system will be pursued to improve its progressivity and narrow the income gap with the European Union’s average [46% of GDP] by the end of the legislature.
According to Eurostat data from the end of 2022, Spain’s income level stood at 42.6% of GDP, slightly below the EU average of just over 46% targeted by PSOE and Sumar. The difference amounts to approximately four percentage points of GDP, equivalent to around €40 billion. This is a significant figure.
This data includes both tax and non-tax revenues, such as contributions, fees, tolls, and even land sales. However, the bulk of the amount comes from taxes, and the substantial increase proposed by both parties relies heavily on a significant tax hike for large companies. According to Díaz, this measure alone will contribute a total of €10 billion.
The proposed tax reform, which will be implemented if Sánchez’s investiture succeeds, will ensure that a 15% effective tax rate is applied to the accounting profit of large companies in corporate income tax, in line with global and EU agreements, as stated in the document. Díaz emphasizes that this tax will be based on «real profits» and not on what companies claim to earn. She believes that large companies engage in tax engineering to pay much lower taxes.
Díaz argues that these companies only pay a 3.8% tax rate, while small companies pay 17.5%. She states that this is unfair and must end. Large companies often reject these claims, arguing that these figures do not include taxes they already pay in other countries. However, beyond this debate, the promise of an additional €10 billion made by Díaz stands out due to the high amount and the difficulty of actually achieving it.
Looking at the corporate income tax collection data from the last fiscal year, total revenues amounted to just over €32 billion. Therefore, this measure represents one-third of the total annual revenue. Furthermore, the document does not provide any further details, and the Ministry of Finance does not confirm the figures. The roundness of the number suggests that behind this promise, there may be more political discourse than a thorough tax study on the actual impact of the measure.
The agreement between PSOE and Sumar also includes progress in environmental taxation, which was also proposed in the White Paper for tax reform. The document recommends, for example, increasing taxes on diesel and gasoline, aligning with the principle of «polluter pays» stated in the government’s document.
Overall, the tax reform proposed by PSOE and Sumar aims to significantly increase state resources and reduce the income gap with the European Union average. However, the feasibility and actual impact of these measures remain to be seen.