The Spanish government has reacted to the Supreme Court’s decision to make borrowers bear the cost of a controversial mortgage fee by announcing that it will change the law so that “Spaniards will never again pay this tax.”
Prime Minister Pedro Sánchez, of the Socialist Party (PSOE), made unusually critical remarks about the court, which has for weeks been issuing contradictory decisions on the subject of the tax.
“I think the Supreme Court needs to reflect on the debate that’s been created regarding its own credibility. It needs to reflect about these past two weeks. I respect the independence of the judiciary, but no power is free from criticism, and I think the judiciary needs to take stock of what’s happened,” said Sánchez at a press conference on Wednesday.
Never before had Spain witnessed such a swift and open confrontation between the government and one of the top courts in the country. The crisis comes just weeks before the Supreme Court is due to open the trial of the Catalan separatists who led a secession attempt a year ago. Sánchez said on Wednesday that both issues are unrelated, but admitted that the court has been weakened by this latest controversy.
The Supreme Court gave many Spaniards reason to celebrate in mid-October when a panel of judges sitting in the administrative division ruled that the Impuesto sobre Actos Jurídicos Documentados (AJD) should be paid by the lenders, as they are the ones with an interest in obtaining a notarized certification of the loan. This decision reversed 20 years of jurisprudence that made borrowers pay this stamp duty.
Just days later, the head of the division said this new position would be reviewed by all the judges in that section. By then, bank shares were losing value on the stock exchange, and regional governments were estimating €5 billion in potential losses from returning the money to taxpayers going back four years (as long as it is legally possible to claim refunds) before claiming it themselves back from the banks. Meanwhile, mortgage holder associations staged marches outside the court building in Madrid, accusing the judges of being subservient to the banks.
Higher interest rates
Financial experts and statements made by lenders themselves in recent days suggest that any added cost to banks from paying the mortgage tax would be passed on to new clients through higher interest rates.
Rubén Gimeno, head of studies at the tax advisory department of the General Council of Economists, said that “this is one more expense for the bank, and when it issues a loan, it will raise the interest rate.” In his opinion, lenders are more likely to raise interest rates rather than increase commissions because, in the latter case, “the courts could say they are abusive clauses and force them to pay half.”
Asked by journalists about the possibility of higher interest rates, Prime Minister Sánchez replied: “I believe and I trust that they won’t, because the mortgage market is quite competitive because there is a big offer, and not just in Spain but also in the EU.”
On Tuesday evening, after two days of deliberations, 15 justices ruled that clients must pay the tax, against 13 who said it should be the banks. The split decision has evidenced a fracture within the Supreme Court and damaged its public image. All the main political parties have spoken out against the decision, and a protest march has been called for Saturday by the leftist groups Podemos and United Left.
Sánchez is now promising to get new legislation enacted to ensure that the AJD is paid by the banks from now on. Although he heads a minority government, the PSOE leader expressed confidence that opposition groups in Congress will support the decree that his Cabinet will pass tomorrow. The Popular Party (PP), however, on Wednesday suggested that this stamp tax should be eliminated altogether, a move that would deprive regional governments of more than €8 billion a year.
Sánchez criticized the PP leader, Pablo Casado, for making this suggestion. “Let him talk to the premiers of regions controlled by the PP, because they’re the ones asking me for more resources for healthcare, education, infrastructure. If this tax is eliminated, they will have fewer resources. We want to maintain it, and for the banks to pay it,” said Sánchez.
Albert Rivera, head of the center-right party Ciudadanos, said he will support a legal reform to make banks pay the tax and also criticized the Supreme Court for “harming itself” with its latest decision. Pablo Iglesias, leader of Podemos, said that making banks pay from now on is an insufficient step. “It’s not enough. It is necessary to return the money to families,” he said, alluding to current mortgage holders who could benefit from a retroactive application of the law.
English version by Susana Urra.