Spain to hike taxes on large companies, high earners in 2021 budget

By Belen Carreño and Nathan Allen

MADRID (Reuters) - Spain's left-wing government announced plans on Tuesday to raise taxes on large companies and high earners to fund increased spending on social care and infrastructure as part of its progressive agenda.

With the coronavirus-battered economy expected to shrink an unprecedented 11.2% this year and tax revenues due to ebb 7.6%, the government aims to boost 2021 budget revenues by 6.8 billion euros ($8.04 billion), giving it more firepower to spend its way out of the crisis.

"This budget cannot be postponed. This budget is essential for the modernisation and recovery of our economy," Prime Minister Pedro Sanchez said in a televised statement.

Governments around the world have so far said very little about how they plan to pay for the cost of unprecedented levels of state support to virus-hit economies. Even the International Monetary Fund last week said the priority for now was to control the pandemic and then foster economic recovery.

Spain's 2021 budget is due to reduce tax exemptions for dividends from subsidiaries earned by big corporations to 95% from 100%, while real-estate investment trusts will face a minimum tax rate of 15% of earnings, Sanchez said. Previously, such companies benefited from several reductions.

But some of the more radical measures agreed when Sanchez's Socialists formed a coalition with the far-left Podemos party last year have been watered down.

Higher corporate taxes will affect just 0.12% of Spain's companies and yield 1.52 billion euros.

Meanwhile, a two percentage point increase on income tax for high-earners will only apply to those making more than 300,000 euros a year, up from an initial threshold of 130,000 euros.

It is estimated to apply to 0.17% of taxpayers, but deputy premier and Podemos leader Pablo Iglesias presented the hike as a first step to deeper reforms.

"Those who have more will contribute more", he said. "Today we enter a new era in Spain's economic policy and definitively leave behind the neo-liberal age of austerity."

The measures follow previously approved moves such as a so-called Google tax on revenues booked locally by large tech firms, which other European countries are also considering.

With the revenue boost, the government wants to double infrastructure spending to 11.5 billion euros and increase civil servants' wages and pensions by 0.9%, in line with projected inflation.

If the minority government can muster sufficient support in parliament, it could pass Spain's first budget since 2018, and the first full-year budget since 2016. In other years, budgets got rolled over from year to year, for lack of a majority.

Barring any delays, the bill could come into force by the end of January.

($1 = 0.8461 euros)

(Reporting by Inti Landauro, Nathan Allen and Belen Carreño; Editing by Ingrid Melander, Tomasz Janowski and Mike Harrison)

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