Spanish unions reject proposals on tax reform

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The CC.OO and UGT trade union confederations have severely criticised proposals for tax reform being prepared in early 1998 by Spain's conservative Government. In their opinion, the plan benefits only the rich and threatens levels of social expenditure.

Spanish trade unions allege that the orientation of the conservative Partido Popular (PP) Government's socio-economic policy is authoritarian, retrogressive and particularly unfair in the area of taxation. This view prevails despite recent improvements in the social dialogue and the greater autonomy of the social partners which have led to a series of major agreements - such as the 1997 "April agreements" (ES9706211F), the 1995 Law on Prevention of Labour Risks (ES9711132F) and the 1998 Statute of the Civil Service (ES9803143F).

After substantially reducing company tax and taxation on higher incomes in summer 1997, in early 1998 the Government is preparing a tax reform that, according to the unions, consolidates an "unfair distribution of the efforts of citizens". Today, 80% of personal income tax (IRPF) collected comes from wage earners. This represents more than 65% of all taxation. Therefore, the unions are seeking a dialogue on tax reform, but on two conditions. First, they want a more balanced treatment of all income, whether earned income or capital yields. Second, tax fraud must be fought. The unions believe that tax fraud is found mainly with regard to capital yield amongst higher income brackets - they go so far as to declare that "the Government would like to exempt the rich from paying tax." They believe that the current proposals on tax reform involve the threat of future cuts in social expenditure. In fact, the February 1998 proposal to abolish a list of drugs financed through social security (the so-called medicamentazo- ES9803251N) is seen as being in line with this policy.

Moreover, one of the most important employers' associations, the Catalan Fomento del Trabajo, has carried out a study on trends in the incidence of taxation. Its conclusions do not contradict the unions' criticisms. Over the last 20 years (1977-97) the fiscal burden on wage-earners has doubled, and the largest increase has been concentrated in the middle-income bracket. Thus, the increase in "crude fiscal burden" (measured by the variation in the real tax rate for the same income level) has been no less than 135% for those with an annual income of ESP 3 million.

The increase in the tax burden on earned incomes has accumulated because the tax rate has been maintained for several financial years, during which time inflation has risen and wage earners have suffered losses in real income. However, during these same years there has been a reduction in the tax burden on other types of income, such as capital gains and capital yield. The 1991 law on IRPF improved the fiscal treatment of capital gains, and further improvements were later made by PP. Capital gains are currently subject to only 20% taxation under the IRPF. The unions and other social interests therefore believe that the tax régime discriminates against earned income in comparison with other forms of income, and wish to participate in the Government's consultations, as the CEOE employers' organisation has already done, by sending a representative to the commission of experts which is discussing the proposals.