Salgado bids to draw line under government wealth tax confusion

Minister says rebel PP regions will still receive compensation even if they do not apply revived levy

Economy Minister Elena Salgado said Thursday the wealth tax the government plans to restore in a Cabinet meeting on Friday will remain in place only for this year and in 2012. Seeking to clarify confusion over recent days about both the levels at which the tax would be applied and the implications for regional governments which decide not to impose it, Salgado said it would affect about 160,000 individuals with assets excluding that of the primary residence of over 700,000 euros.

The tax is applied on a regional basis. But a number of regions governed by the conservative Popular Party (PP) have objected to its reintroduction. When the tax was withdrawn in 2008, the regions were compensated for the loss of income incurred.

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Salgado said on Thursday that it was impossible to change that part of regional financing law, meaning they would continue to get a total of 2.1 billion euros this year and the next. This was in direct contradiction to recent statements by Alfredo Pérez Rubalcaba, the Socialist candidate for prime minister, who, in the presence of Salgado, told a national television audience that rebel regions would lose out as they would not continue to receive compensation from Madrid. The resurrection of the tax comes ahead of general elections the Socialists look set to lose on November 20.

Salgado said that those regions which decided to apply the new tax would effectively be receiving additional income to the 2.1-billion-euro compensation fund.

Under the previous version of the wealth tax before it went into abeyance in 2008, 900,000 people with assets excluding the family home of over 120,000 euros had to pay. Salgado said the allowance for the family home had also been doubled to 300,000 euros from 150,000 euros prior to 2008.

The government of José Luis Rodríguez Zapatero took in 2.1 billion euros from the tax in 2007, the last year it was in effect. Salgado said using the parameters of the previous application, this time around it will take in an estimated 1.08 billion euros.

Separately, the Socialist Party benches in Congress managed to approve a labor reform that supports temporary contracts, contradicting a limit on such employment terms that the government itself had enacted in 2006.

Under that reform, after four straight temporary contracts employers had the obligation to hire the worker on a permanent basis. Now, there will be no such limit for at least the next two years. The PP agreed to abstain to allow for the removal of the restriction.