Public deficit and the family business

Article in ABC Newspaper, 21 April 2017

Leopoldo Cólogan

Punta de El Hidalgo, in the Northeast of Tenerife

On 30 March 2017, the Minister of Finance and Civil Service, Cristóbal Montoro, declared that the reduction of the public deficit is a powerful tool for improving economic growth and the creation of new jobs. To understand this statement, I had to remind myself what public deficit is; it is nothing other than what is produced when government spending is greater than its revenues. In other words, what this statement means is that, if the government were to spend less or have greater revenues, there would be an improvement in economic growth.

Next, to understand this even better, I recalled which measures have been recently adopted in order to reduce the public deficit. In this regard, the overlooked Royal Decree-Law 3/2016 of 2 December is of special interest, whereby Corporate Tax was increased by establishing new limits in relation to what companies can deduct when calculating tax owed; Wealth Tax was extended throughout 2017 and Property Tax was increased by approving the adjustment coefficients of the cadastral values for 2017.

“The undeniable truth is that you have to reward effort.”

Therefore, the issue of tackling the public deficit is not as ambiguous as it seems, and what the government is doing in order not to reduce public spending is calling for a greater effort from those businesses that have been able to stay afloat in a period of severe economic and financial crisis, and from those that, despite everything, have created or maintained wealth, thereby increasing public revenues.

All this is related to something very obvious, which is that you have to reward effort and must never penalise it; and effort is not rewarded with the creation of unfair taxes, as might be the case with double taxation, or in other words collecting several taxes for the same thing, or taxing notional situations that don’t correspond to actual economic capacity. We have been reminded of this last example by the Plenary of the Constitutional Court in its rulings of 16 February 2017 and 1 March, 2017, when it established that legislators are not authorised to tax notional wealth that is inexpressive of the actual economic capacity, and that citizens cannot be prevented from fulfilling their obligation to pay taxes, and not just in any way, but solely on the basis of their economic capacity. That being the case, to what extent does a notional situation exist or is it unfair that, by means of the aforementioned Royal Decree-Law, new limits are defined with regard to what companies can deduct when calculating the Corporate Tax that they must pay?

The undeniable truth that you have to reward effort and that by doing so you encourage economic and social growth and development was clear to the Catholic Monarchs during the conquest of new territories, when they authorised the distribution of land among those who contributed to the conquest. Similarly, instead of penalising, we should perhaps reward those companies trying to conquer new markets abroad or those who invest and spend in the national market, thereby encouraging progress and development, by making them pay taxes solely according to what they truly earn, deducting, without limitation, the necessary expenses in doing so and the losses, which represent the effort and risk that they have assumed. In other words, they should pay taxes according to their actual economic capacity. If all that is not possible, despite the principle that it is better to receive a small percentage of a great amount than a great percentage of a small amount, at the very least we should recognise the effort that companies genuinely make and the sacrifice that is being asked of them in order to reduce the public deficit, and of family businesses in particular, which represent 90% of the business community and 70% of employment in the private sector.