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A taxing campaign

The PP believes that tax cuts create jobs, while the Socialists has long been talking of reform

The worst thing about the recent blunder by the Popular Party (PP) spokesman Esteban González Pons - when he blurted out that his party's prime-ministerial candidate Mariano Rajoy aspires to create 3.5 million jobs in the next term - is the reasoning that sustains it. Rajoy already promised in 2008 to create 2.2 million jobs. In 2008, that is to say, when the symptoms of the crisis ignored by Socialist Prime Minister José Luis Rodríguez Zapatero were not, to judge by this promise, very accurately assessed by the PP candidate either.

Perhaps he thought that, if he won, the crisis that is oppressing the economy of the whole world would not affect that of Spain. Rajoy's anti-crisis proposals, however, soon boiled down to the demand for early elections, which would enable him to use the prescription of 1996: lower taxes to stimulate growth. Reality was different; growth, which had actually restarted before Aznar's victory that year, increased incomes and this allowed taxes to be lowered. Nevertheless, this myth still forms part of the PP line: reducing fiscal pressure is a precondition for the stimulation of entrepreneurial initiative, and also helps to reduce the deficit.

But this argument is more ideological than technical in nature. In a crisis such as the present one, when the urgent need to reduce the deficit competes with the longer-term need to stimulate recovery, a balance must be sought between the two objectives. To focus the whole anti-deficit effort on spending cutbacks may be socially unfeasible, as regional governments are now finding in the face of protests over cutbacks. One alternative would be to increase revenues by raising taxes, an option for which Spain, with a lower overall tax pressure than its neighbors, has some margin. Besides, a tax hike may forestall the spending cuts. The additional revenue will increase public-sector demand in greater measure than the diminution of private-sector consumption, for a part of the reduction of money in household hands will translate into less saving.

For some months now the government has been talking of a reform of the tax system, but has been divided on just when to do it and on what taxes to modify. Zapatero, Economy Minister Elena Salgado, Public Works' José Blanco and the Socialist candidate Alfredo Pérez Rubalcaba too, have brought forward different nuances on the recovery of the wealth tax: when, and starting from what level of wealth. Blanco announced that it would be approved in this week's Cabinet meeting, with the assent of Rubalcaba, and it is now on the agenda.

Pending announcement of what the tax-exempt minimum will be, the recovery of the wealth tax on major fortunes also leaves pending a reform which no one wants to undertake, for fear of prompting the relocation of companies and capital: to reduce the excessive difference between personal income tax (IRPF) rates and those applicable to unspecialized companies, which enables high-income taxpayers to utilize such companies to pay less tax than employees with far lower incomes. Certainly taxes will have to be raised, but desirably within an overall reform aimed at increasing the efficiency and equity of the whole system.

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