Tax distortions and business demands

The clamor from a large part of the business community to reduce the tax burden borne by companies and investors in order to foster innovation, job creation, talent retention, and so on, is a recurring theme. It's difficult not to sympathize with this position, although the demand cannot be to eliminate everything that is bothersome. It's not about abolishing, by the easy route, any of the taxes that generate certain business problems in a general way, but rather about adjusting taxation to specific objectives.

If we look at the country's tax system as a whole, we realize, firstly, that much of what is being demanded is not within the control of the Catalan government. Furthermore, making arguments based on the overall tax burden reveals little about the economic reality and is of little use in understanding the problems. And that's without even considering the misguided aspiration to have good public services but have someone else pay for them with taxes. In any case, there are three fundamental issues that shape the current tax debate. On the revenue side, the difficulty of making the incorporation of the aforementioned talent attractive exadosThis is due to the treatment that should be given to the assets and income of recovered talent; the issues of investment location and business placement, given the State's taxation and internal regulations—let's say I'm referring to Madrid's dumping practices—; and other tax constraints that are often cited as hindering business growth. On the expenditure side, taxation is discussed in terms of the need to improve infrastructure investment for the proper functioning of the economy, from commuter rail to the Mediterranean Corridor, including housing mobility that aligns with production hubs; and a whole range of essential public services required by the country's level of economic development (good healthcare, education, vocational training, etc.) that are proving insufficient. Both sides of the budget are lacking; one due to excess, the other due to deficiency. It is therefore necessary to analyze them simultaneously.

This leads us to consider that any change in taxation other than replacing one tax (the most inefficient from a business perspective) with another (the lesser evil, since nobody wants to pay taxes) is foolish and unacceptable from a business standpoint, unless it specifies which public spending must be reduced to maintain the current level of activity. Furthermore, I believe it is common sense to accept that the potential reduction of spending, achieved through better spending practices, is a general desideratum. If we are convinced of its viability in terms of efficiency and equity, the idea of conditioning the tax reduction on the prior implementation of the spending cuts would be compelling.

As for the potential disincentive for a company to grow due to taxation, this is simply not true. The reductions in revenue volume imposed by the tax treatment of SMEs—in tax rates and depreciation—are requested by business organizations themselves so they can achieve the same effective tax treatment as large companies and so that taxation doesn't hinder their progress (for example, by allowing accelerated depreciation), precisely to enable them to grow. In attracting talent, the dilemma arises for individuals with very high incomes (more than three or five hundred thousand euros) or who possess substantial wealth. If the goal is to ease the personal obligations associated with taxation, the inclusion of income can be delayed by postponing the recognition of residency, or favorable treatment can be given to assets recovered from outside productive sectors (for example, housing) and reinvested. This problem cannot be solved by abolishing the tax; it requires adjustment. Furthermore, as we say in the Canary Islands, "in a muddy river, the fish acts crazy."

Regarding the distortion of investments and business locations, it is well known that this effect is inherent to a non-harmonized Europe, which our companies accept (very few take advantage of internal tax havens like Ireland or now Belgium), but they do suffer due to dumping. Note, however, that this is not only a matter of tax competition, but also of regulation (no tax-stressed areas, no impact on large property owners, lax urban planning legislation, etc.). In any case, the issue of Madrid's wealth is brewing. There is no concern about losing revenue or reducing spending (healthcare, universities, social services in the Community of Madrid), making this issue a political and ideological one, rather than one of fiscal efficiency. And here, again, the solution It's not that all regions should do the same and eliminate taxes, but rather that the State, for the sake of the supposed unity of the nation and the markets, should replace them, as it has begun to do with the wealth tax, and that our region should raise the minimum thresholds at which one begins to pay the most reasonable and fair tax.

And, I repeat, if the option is an unconditional tax cut, whoever proposes it—politically rather than from a business perspective—must tell us which spending item they want to reduce or which one they want to forgo developing among all those infrastructure projects that would be so beneficial for business growth.

We must also be careful with the adjustments to the new tax system: with each tailored treatment (family businesses, reduced VAT for tourism, debt deductions, etc.) a tax distortion is being introduced that will be difficult to eliminate later, even after the cause that justified it has ended. With moderation and common sense, then, for all those who request tax breaks from supposedly liberal positions. And, if I may, the main problem for our companies, it seems to me, is the overwhelming array of obligations of all kinds (control of entry and exit, whistleblowing channels, data protection, etc.), the perception of a lack of dialogue and of imposition (tax and social security inspections), the level of escalating conflict and the level of actual conflict. In short, it is the high level of responsibility assumed at all levels. The problem, then, may be the perception of a lack of support and the isolation of the entrepreneurial community in our economy.