New Government Plan
The Spanish government sets out a new plan to help a population struggling with real issues, including a lack of disposable income for the retired people.
Spain’s prime minister, Pedro Sánchez of the Socialist Party (PSOE), has announced a new plan for a new Spain. Known as España 2050, this sweeping development plan for the country aims at improving performance on key issues. A string Spain is good for Europe and good for our investors.
More than 100 experts from various fields and ideological backgrounds across Spain in conjunction with political parties, local and regional authorities, unions and employer groups, non-profits and universities have created a new vision for Spain.
Spain has decided to tackle, as a matter of priority the following problem areas:
Spain’s biggest challenge between now and 2050, according to PM Sánchez, is education. Denmark for example spends 10,000 per year per student, Spain spends less than half of that.
In Spain, recent demographic changes have reduced the number of students between the ages of 3 and 15. This change frees up extra resources for these students.
The new program wants to see a 20% increase in Spanish graduates with a degree higher than a secondary school diploma. School dropout rates at 17%, lead the European charts compared with the EU average of 10%. The goal of the government is to bring this figure down to 3%
Coronavirus really focused Spain’s concentration on healthcare in the country. This new report recommends raising health spending from 5.7% of GDP to 7% over the next 10 years. Spain has a life expectancy of 83 years, just behind Japan and Switzerland. This is one of the healthiest countries to live in and by 2050 life expectancy is expected to be over 86. This shift will require changes in the healthcare system. Currently, it is very organizational and very oriented towards the treatment of acute events. They wish to move towards a model more focused on chronic issues.
There would be a new independent agency that will oversee the efficient use of resources in the sector. They will reduce waste; or even eliminate procedures when the cost is considered to exceed the health benefits to the patient.
Exercise, diet and lifestyle in Spain contribute to the general good health of the population, but the government would like to encourage citizen and professional participation in decision-making.
The new plan for Spain highlights the need to tackle the environment in Spain. The authorities hope to change consumer habits, such as eating less animal protein, reducing waste from clothing and reduced cell phone purchases.
Within 30 years, Spain will need to have reduced greenhouse gas and reduce emissions by 23% in that time a recently approved climate law tells us.
One of the program’s most noteworthy proposals involves green taxes. The report holds that it will be necessary to reduce engine emissions and this can be done by raising green taxes to reach the European average by 2030. This appears to be common across Europe now.
This tax would represent 2.6% of Spain’s gross domestic product (GDP), up from the current 1.8%. By 2050, this tax figure should have reached a huge 5% of Spain’s GDP.
The aviation industry is not immune to targeting by the new proposals. Ryanair and the millions of tourists they bring to Spain every year will not like this. The report recommends a new frequent flyer tax or the introduction of new taxes on plane fares depending on the distance to the destination. In France, they have recently banned all flights where the same distance could be covered by train in two-and-a-half hours or less. Although the government has refrained from including such a measure in its environmental legislation, experts predict it is on the way here.
Spain has an ageing population. In 30 from now, one in every three people will be 65 and older.
Many retired ex-pats are looking to move to Spain but the report notes that this immigration will not make up for the shortage of working-age individuals. The number of dependent people in Spain eligible for public aid could nearly double by 2050 to reach 1.6 million.
Experts want to revamp funding for Spain’s caregiving system. This figure they hope to achieve could rise to around 2.5% of GDP by 2050 well ahead of the current .8% of GDP.
Training for caregivers is a priority for the government. The plan for the elderly envisions letting citizens choose between care at home, at an outside facility or a mixed system. It is better for society to allow clients to live in their homes on a sort of Usufruct / Equity release arrangement. Experts would also like to see new types of caregiving centres emerge. They prefer a system that would more closely mirror the experience of living at home. JJC Capital Partners are helping our elderly clients achieve this lifetime lease in their own home.
The report suggests that Spain will raise the retirement age to reflect higher life expectancy as people are living longer. 30 years from now, government spending on pensions might be 5% higher, due to the fact that for every person over 64 there will be 1.7 people of working age, compared with 3.4 today. There are three challenges to the pension system according to the report: financial sustainability, adequate income to retirees, and guaranteeing equal treatment for all generations.
British people can still get their pensions in Spain and live here with a higher standard of living and lower cost of living than they achieve back in Britain. Despite Brexit, Spain is still the preferred destination for Britons and Europeans of retirement age.
Tax in Spain
Spain hopes (unfortunately!) to raise tax revenue from 35% of GDP in 2019 to 37% by 2030, 40% by 2040 and 43% by 2050. There is currently a seven-point difference between Spain and the eurozone and this will be erased by the new scheme.
The government could expand taxable income, reduce some tax benefits, and also eliminate the modulo self-employed tax- A complicated inefficient system that taxes the income of the self-employed based on estimates.
We are also prepared for “a comprehensive reform” of income tax, wealth tax, inheritance tax and gift taxes. Equity release for retirees in Spain is currently very tax-efficient and this is not due to be affected by the new recommendations. The report notes that different regions of Spain currently have widely varying rates and this is unfair and undesirable.
In Valencia, for example, the gift tax rate is currently at more or less zero, due to the loophole in the law. These loopholes will soon be closed.
The plan to increase tax suggests more bad news with higher taxes on alcoholic beverages, tobacco products and petrol. We also expect to see incentives to encourage a greener economy. There is a special focus on vehicles. They should, according to the report, be taxed based on their real use and characteristics, including weight, power and emissions.
The report addresses the need for corporate tax reform. Spain has urged the EU for harmonized categories of taxable income, a minimum tax rate and a solution for taxing technology companies.
The underground economy (black economy) in Spain is targeted through greater coordination among tax agencies, a ban on tax amnesties, greater information exchange between agencies and regions and promoting education in schools.
Employment in Spain
In good news for the worker, the Spanish PM, Sanchez, proposes reducing the working week to 35 hours. It is already being tried successfully in Spain and countries like Iceland. He hopes too to have success increasing the presence of underrepresented groups in the workplace.
An ageing population, as mentioned in the report will mean a smaller workforce, and in order to offset this, more young people, women and over 55s need to be employed. Immigrants too are needed and encouraged to enter the workforce. The goal is to increase the employment rate by a large 15 percentage points over the next 30 years.
Many of us ex-pats living in Spain complain of inefficiencies in public agencies and departments. The plan sets out a series to rectify this. They intend to improve efficiency, by creating a culture of evaluation and accountability at all public agencies and departments. Wow! There should be greater efforts to digitalise the public sector and to ensure that citizens can conduct most of their services online. In the long term, A.I. could be used to analyze information, help design policies and help evaluate services. Useful applications proposed include real-time data on the cost of medical procedures, the evolution of the job market and statistics on social services.
The report also recommends a system of evaluation and incentives to promote and retain talent in the public service. Civil servants should have access to constant training conducted to ensure that the government employees have the skills required for the job at all times.
It appears that after the Covid 19 epidemic has passed, the country here is ready to tackle the challenges ahead in a positive manner. Reform and systemization is music to the ears of investors and indeed our core clients- elderly people hoping to release cash from their home in Spain. Our equity release products lend themselves perfectly to a new, healthy, positive outlook for those of retirement age in Spain.
If you are interested in equity release, JJC Capital partners are the experts. Why not get in touch for a free assessment today?