There are only two certainties in life – death and taxes.
With tax levels for residents being among the highest in Europe, current inhabitants of Catalonia will definitely agree with the latter.
In a country where taxes differ from region to region, the Catalans seem to suffer the most for their hard work.
And with the recent announcement by Andreu Mas-Colell (economic counselor for Catalonia) that property transfer tax will rise from 8 – 10%, any future respite seems doubtful.
Property transfer tax, or impuesto sobre transmisiones patrimoniales, is a tax paid on the transfer of ownership on existing property, therefore payable on the majority of property sales in Spain. This tax does not apply to new build properties, where IVA (or VAT) is applicable.
The rise will come into effect on August 1st 2013, which begs the question, does a policy of short term financial tax gain outweigh the benefits of a fluid and buoyant property market?
Like the rest of Spain, since 2008 the property market in Barcelona has ground to a halt. Sales have declined and prices have decreased, reportedly up to 30% in some areas of the city.
With the city crying out for an incentive to inject growth into the market, many are questioning the sanity of a further barrier to future sales.
The Catalan government argue that income is needed to prevent the effects of the current crisis – a crisis that has left the administration with a large and ever expanding deficit.
Counter this argument with the benefits to all economies from a strong property market and the arguments weaken. From estate agents, builders, designers, architects, to the benefits of rising retail sales across many sectors. All of which, pay tax to the government either through income or IVA. It’s clear that many industries would be set to gain from increased property sales.If there is one indicator of the benefits of a strong property market, we can examine the juxtaposition – a property crash. After the property bubble burst in 2007, it’s clear, in Spain’s current climate, the detrimental effect this has had.
Therefore, shouldn’t the national and local government be doing all it can to combat one of the main causes of the crisis and not place further barriers to growth?
Andreu Mas-Colell has attempted to justify the increase, by stating he is simply placing the tax in-line with IVA on new-build properties. In reality, an unjustifiable statement as it is simply bad economics to compare two different taxes and assess that their values should be equal.
The argument goes deeper however, when analysed from a political perspective. Spanish nationalists would argue that the Catalan government is simply trying to raise a further 2% for Catalonia. An amount which would be payable directly to the region and not to the nation.
And this is where one conclusion may lie, in the bad feelings and animosity between local and national governments and the general view of the locals, that Catalonia is being stripped of it’s wealth.
It is clear that progressive rather than regressive taxing policies are needed. Spain and Catalonia are not averse to making progressive incentives, as shown by the recent cuts in IVA on new build properties.
An incentive which ended in 2012, brought in to combat the glut of unsold new-build properties.
A broader analysis of the ‘impuesto sobre transmisiones patrimoniales’ also needs to be made.
This tax and the other numerous taxes that are connected to property purchase here in Spain, has created a system where many Spanish and Catalan’s buy their properties for life. People move once and rarely again, and children live at home well into their thirties. The costs of purchases are simply too high, and more importantly; these costs are not redeemable on re-sale.
Why then is this tax set at a level that is universal to all property bands. Shouldn’t the bands be laddered providing cheaper rates for cheaper properties, as is the case in many countries in Europe?
Mas-Colell has added a benefit to the under 32’s, a reduction to a level between 5 – 7%, but wouldn’t the benefit be greater if the tax band for low cost properties be around 1 – 2% for all?
This would encourage young purchasers, or first time buyers, to purchase the large stock of micro-apartments and then move on when their needs grew.
Creating a fluid system of change and growth with the knock-on effect of increased income for local and national government. Which leads directly back to their original main objective – more cash in the coffers!
What are your thoughts on property tax in Spain and Catalonia, have your say by leaving a comment.