The higher taxation borne by investments in Spain compared to other comparable countries penalizes and hinders households from investing their savings. The effective rate borne on various analyzed products – stocks, deposits, funds… – rises to 22.3%, eight points higher than the 14.4% of the European Union, according to a report by the Institute of Economic Studies (IEE) and the Spanish Association of Financial Advisors and Planners (EFPA).
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This taxation reduces “more intensely” the net return that reaches families, with even more notable differences in deposits or bonds and fewer advantages in widespread products such as pension plans. The outlook “discourages” taking savings to investment, it is emphasized, which prevents channeling it to the productive economy or combating the effect of inflation on purchasing power.
Taxation is one of the factors that most conditions saving and investment decisions. The report reiterates in this regard that the tax framework is “unfavorable.” “On average, we are in a high band, which does not facilitate the movement of savings, moves away from optimal levels, and conditions movements,” explains Adrián González, director of studies at the IEE. “Taxation hinders channeling to financial markets,” he continues.
Spaniards accumulate one trillion euros in accounts or deposits with zero or low remuneration. Taxation – in addition to other factors such as financial education – causes “two opposing directions,” not natural. “In low-income households, uncertainty and lack of incentives lead to maintaining a more conservative attitude, with lower returns and where it is more difficult to beat inflation. In households with higher incomes and financial knowledge, they have the opposite equation: the taxation they bear is high, which makes it worthwhile for them to take riskier positions to achieve better net returns that they would not take with more moderate taxation,” he says.
Pension plans are criticized for a “neutral” treatment while other countries incentivize them more
The effective taxation, which serves to compare countries and has been calculated in the study, is a synthetic measure that captures all the taxation faced by a financial product on its gross return. This allows seeing how the tax system or the marginal rate affects throughout the life of the investment, by incorporating the taxes that affect the investor on interest, dividends, gains, transactions, withholdings, or similar. On this basis, Spain and its 22.3% fare worse than neighbors France and Portugal, and Germany, Greece, or Italy. “The tax cocktail leaves a non-competitive, poorly treated taxation,” states José Manuel Ortiz, from EFPA Spain. “It is a factor that penalizes. If taxes are high and there are no financial products that help mobilize savings to the capital market, we will find ourselves in a situation of lack of competitiveness,” he assures.
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In deposits or bonds, the effective taxation observed is 30%, five points above the EU. That percentage is homogeneous with the rest of the countries and takes into account the entire fiscal impact they have, since if only the IRPF is analyzed, the rate on deposits is 18% for low returns. The gap becomes notable because almost 40% of household portfolios are deposits, the report mentions. Taxation on stocks is 29%, again on the high side and seven points above the community average. The situation repeats in investment funds (rate of 27%, six points more). In pension plans, the tax treatment is neutral, while in the EU or OECD they are more incentivized. In this section, the limitation on deductible contributions – currently 1,500 euros – or that the withdrawal is taxed as employment income, with rates up to 47%, is especially criticized.
In deposits, Spain is five points above the EU considering the entire fiscal impact
Changes in the tax system in recent years, such as raising the maximum rate on savings income to 30%, have deepened the problem, leaving a “complex” scheme, sometimes “not very neutral” and with a revenue interest, it is mentioned. The “padlock effect” occurs: that investments are not liquidated due to the tax burden, which “distorts the efficient allocation of capital.” Among the proposed measures are a reduction of maximum marginal rates to EU levels, promoting long-term savings – such as with more incentives in the pension plan – improving the loss compensation regime, or that taxation corrects accumulated inflation when recovering an investment. “Today it is difficult to identify which product is attractive,” Ortiz emphasizes.
The European savings account project as a way out
With the debated taxation, at this time European bodies want to promote a tax-incentivized savings account to invest in the economy and companies of the European Union, channeling savings to the productive economy. “The big debate now is whether Spain will regulate the savings and investment account following the recommendation of the European Commission. It would be an investment product that has an incentive in the form of tax deferral, without paying taxes when switching from one product to another, with a tax exemption when recovered,” Ortiz reviews. “For now, it is stuck,” he says. Spain is also promoting accounts with the Finance Europe label, which would give access to better taxation for investing in certain sectors. “It is not so much about reducing bad taxation as stimulating savings with fiscal measures, and also directed to capital markets,” he emphasizes.
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