“There is scope to raise more money with Corporate Tax.” The Minister of Finance of the Basque Government, Pedro Azpiazu, used these words last May to suggest that the tax increase was open. In their view, Basque businessmen pay no more than elsewhere. The phrase generated a tumult in economic powers, employers and foreign institutions.

Just over half a year later, we went on to imagine that companies should raise their taxes to one of the biggest decreases in recent times: the nominal rate on large companies has risen from 28% to 24% and the average and small rate has risen from 24% to 20%. All of this, with the authorisation of the PSE, which recently opposed the Corporation Tax moving by a tenth.

This acrobatic pirouette by Jeltzales and Socialists also includes the approval of the General Budgets of the CAV – with the abstention of the PP- in the absence of surprises in the plenary of the Basque Parliament of 22 this month. The business association Confebask applauded the agreement and stressed that a "model of its own" has been established for the negotiation of the agreement. These three parties (PNV, PSE and PP) have de facto formed a large economic bloc in the name of the “stability” that also serves for the historic territories, as we have seen with the accounts of Álava.

Bejuco de Azpiazu

If companies are taxed down, at least they will have more money to raise wages to the workers... This could perhaps be thought of by the humble citizen, and Azpiazu also thought of it when he recently called for companies and trade unions to call for wage increases – according to the latest report of the Council on Labour Relations, the purchasing power of workers has decreased by 5% since 2008. Once again, the employer has given him a strong slap: “It’s very comfortable to ask for the climb when it’s another one that pays,” said Iñaki Garciñuno, president of the Bizkaia Business Association, Cebek, in an interview with Herri Irratia. Seeing what has happened with the Corporation Tax, who knows if next year the Olentzero will not bring workers a wage hike instead of a drop...

In the same interview, Garciñuno assured that the wage increase does not necessarily imply an increase in consumption or a dynamization of the economy: “The worker can allocate this increase to the healing of his economy or to the repayment of his credits.” And unintentionally, it has put upside down one of the main arguments that employers use to demand companies to lower taxes: as the wage hike does not necessarily lead to an increase in consumption, nor does the fall in taxes mean that the company will invest more in job creation. Speculative investments often stand out, as stated by UPV/EHU professor Mikel Zurbano in this issue of ARGIA (“Tax arrears”, page 17).

Duty Drop Cup

The Nobel Prize in Economics Paul Krugman (El País, 17-11-2017) has explained that, in reality, delegated directors of companies that know the real world of business do not pay too much attention to tax rates, because they are not an important factor in investing. Krugman speaks clearly of Donald Trump’s tax reform, which means reducing the tax burden on businesses from 35% to 20%, and specifically tells what happened to an economic advisor to the US President: "He met with senior executives and asked them who thought that lowering taxes would raise capital spending. A few raised their arm.” This anecdote shows to what extent the ideological question is, to what extent the cup of the tax fall is part of the “ideological imaginary of the right”, as Krugman says.

To what extent is that? The Minister of Economy, Arantxa Tapia, has acknowledged that the goal of lowering the nominal corporate tax rate is to attract foreign investments that “just look at that” (El Diario Vasco, 11-12-2017). Cebek pointed out that this is something that must be put in order the fiscal photo and sold "the exterior image". A little bit of marketing for neoliberals from other places to see a free territory in our country for their companies. Ideology.

Debate on pil-pil

The tax reform will be carried out at the beginning of 2018 and everything points out that it will not be adopted until March at the general meetings of Álava, Bizkaia and Gipuzkoa, with the retroactivity of 1 January. In this time there will be much to say and much more to do. Last Thursday, in the plenary of the Basque Parliament, the Elkarrekin-Podemos motion on taxation was debated, whose member Julen Bollain complained that, in addition to paying “little”, he was given “tax cuts”. The motion did not go ahead, but Elkarrekin-Podemos and EH Bildu have announced that they will ask for a full monograph.

The PNV and the PSE that have promoted the modification of the Company Tax have explained that it does lower the nominal rate, but that the effective rate, which is finally paid, rises as a "benefit" because there have been changes in the deduction and the bonuses, explained Idoia Mendia. They say that that will increase revenue, create jobs and do tax justice, because it is big companies that use the deductions most to pay less taxes, and they will bring stability ... Is that the case? We have asked ourselves other questions to answer that fundamental question.

1) How much do companies pay?

The Basque Council of Finance, at its last meeting last October, gave a piece of information to draw inspiration: The haciendas of Álava, Bizkaia and Gipuzkoa have regained the "anterior muscle" to the crisis and managed to overcome the historical collection of 2007 in 2017, with increases above 10% compared to the previous year. However, the contribution to the public purse shows very different trends if we look at personal income tax or employee corporation tax.

Companies' contribution to Corporate Tax has halved in ten years: In 2007 the revenue amounted to EUR 2,034 million, while in 2016 the revenue amounted to EUR 1,003 million. The companies that tax in the CAV, therefore, only contribute 7.7% of the cake, while in the Spanish State they contribute 12%. Azpiazu put this data on the table as “cotton proof”, to point out that Basque companies pay a low tax.

In addition, in recent years the figure has dropped in the same way – the forecasts for the financial year 2017 indicate that this trend will break for the first time – despite the fact that companies have increased their profits by overcoming the crisis. On the contrary, the income tax on labour has been rising and already accounts for 35%; the rest is collected from what is paid for indirect taxes, especially VAT.

2) Do they have more tax pressure than companies elsewhere?

According to the US conservative think tank Tax Foundation, the average corporate tax burden in the 1980s was between 45% and 40% worldwide. But the Tatcherism and the laissez faire doctrine (“letting go”) have made companies less and less taxed: Among the OECD countries, the rate was 32 per cent in 2000 and barely reaches 25 per cent.

Basque business associations have complained many times that they have lagged behind in the road tolls race with 28%, compared with a rate of 24% for the majority of small and medium-sized enterprises in these territories. But if we compare what companies contribute to the Gross Domestic Product (GDP) used to calculate a country’s wealth, we have a very different data:

3) Who pays and who does not?

When the meetings and agreements on tax reform were speeded up at the end of November, we gave significant data on the ARGIA website, through the unions ELA and LAB: According to EiTB, 78% of CAV companies do not pay corporate tax. In particular, 55% of the companies declare losses and the other 23% say they have no balance or have earned less than 6,000 euros in order not to have to declare it to the Public Treasury. To this end, inter alia, they make accounting adjustments or subtract from the positive results the contributions to the reserve.

The most common accountability mechanism for many companies is compensation for losses from previous years, which can be traced back to the 15 years when the crisis hit hard. So far these losses could have been exploited indefinitely, but with the tax reform small and medium-sized enterprises will have a barrier of 70% and 50% the large ones.

However, most companies using this mechanism are small in size. In Gipuzkoa, for example, 97% of the companies that have compensated losses have fewer than 50 employees. Thus, it is not known whether the collection obtained will be sufficient to cope with the drop in the nominal corporate tax rate. On the other hand, the few with a positive tax base take advantage of the deductions to pay even less.

Faced with these doubts, lehendakari, Iñigo Urkullu, pointed out in the Parliament that the reform must be seen “in its entirety”: some deductions have been made for R & D & I and, in addition, the minimum rate has been increased by four points, up to 15-17%. In view of all this, what will the final balance be? The professor of public finance, Ignacio Zubiri, estimates that companies will ultimately save between 150 and 200 million euros, that is, between 100 euros per person or per inhabitant.

4) How will fiscal reform affect budgets?

When the Basque Government presented the 2018 draft budget, it stressed that they are “the largest in history”: EUR 11,486 million. PNV spokesman in the Basque Parliament, Joseba Egibar, stressed at the plenary session on 11 December that “people and auzolan are axes”. From EH Bildu's group, Maddalen Iriarte answers: “These budgets are the result of the tax counter-form that has been given to entrepreneurs, that of 155 and that of Confesbask.” ELA has also made them a severe critique and called them “antisocial”.

According to the Abertzale syndicate, in the collection it has been possible to return to the level of 2007, but given that GDP is 10% more at that time, the situation of 10 years ago would require a further EUR 1.375 million. However, in the liquidation this year the Basque Government will have a surplus of EUR 478 million. For ELA it is “false” that the budgets have been increased: removing the total amount to pay and the money advanced to the Spanish Government for the construction of the APR, the community administration has 200 million euros less than in 2009 for its items. Or in other words: Budgets have increased from 15% to 12.8% of GDP in the last year.

This cut has been noted in specific areas. According to a study by the Manu Robles-Arangiz Institute, for example, public spending on health has increased from 5.3% of GDP in 2009 to 4.8%, while spending on education has decreased by 0.7%. This is one of the complaints that the Public Education sector has put on the table in the last strikes and protests: In the CAV 3.8% of the wealth is invested in Education, but UNESCO advises a minimum of 6%, which is the European average.

The trade unions consider that the budget reduction is closely linked to the collection, the payment of debt and the deficit ceiling. ELA and LAB, in a joint press conference on the Corporate Tax Reform Agreement, recalled the “spending rule”.

This rule is part of the reform of Article 135 of the Spanish Constitution of 2011 and establishes a ceiling for public spending. The excess would be used for the payment of the debt. In July 2017, the Spanish Congress approved, with the votes in favour of PNV and UPN, among others, that the autonomous communities register a maximum nominal growth of 2.5% and that the deficit for 2020 is zero. The unions believe that this is why the forced haciendas will “give up” an income with the reduction of the tax on companies: “Budgetary policy and taxation go hand in hand.”