Shifting Perspectives Towards Wealth in the Wake of the Pandemic

Debate is currently centred in two main areas. First, on the Swiss National Bank and its role in paying for the pandemic; politicians are looking to it to step in and subsidise amidst the pandemic. Secondly, further policies may be necessary when the pandemic ends as, currently, Switzerland is subsidising work-at-home policies which could be hiding possible unemployment figures. Once the dust settles we will see which companies are still there or which are operating as skeletons, and the subsequent strength of the economy.

Spain:

Spain has, in recent years, had some political volatility. This is worth keeping in mind as we look to wealth tax; they already have one, but Spain is incredibly decentralised. This tax is administrated by each region, and so we have, for example, regions like Barcelona with an imposed wealth tax while in Madrid it is not. This is key to keep in mind when clients are looking to move to Spain, or if they already live there. 

There are two important considerations in regard to Spanish wealth tax:

1. The wealth tax is limited to a percentage of the annual income of the individual, and cannot go higher than 60% of the income of the individual on a yearly basis – but with an overall limit of 20% on the wealth tax itself. This means that our clients need to pay attention to which types of income they have throughout the year, as the types of income impact these limitations.
2. Family-owned businesses are exempt in some instances, provided certain requirements are met. For example, more than 20% of the ownership of the company must lie with close family members, and at least one member of the family must work for that company with the majority of their revenue coming from it directly. This exemption will normally follow for gift and inheritance taxes, too. Any entrepreneur in Spain should make sure that these exemptions do apply for them. 

Canada:

Canada does not have a wealth tax, inheritance tax, nor an estate tax: they have a capital gains regime. However, the issue of income inequality and the growing wealth gap is becoming increasingly topical. There were consistent rumours, even before the pandemic, that there would be an increase in the capital gains rate.  Since the pandemic this has become a broader conversation – just a couple of weeks ago a pressure group called the Canadians for Tax Fairness revealed that the wealthiest Canadian billionaires have increased their wealth by 28%, or more than 50 billion dollars in the last 6 months. 

While Canada has not had a budget for the entirety of 2020, the 2021 budget looks to be one of the more significant in Canadian history. The government is not just looking to get back to how they were before the pandemic; it has exposed critical gaps in the social safety net.

While a motion to introduce a wealth tax was defeated in the House of Commons, there is certainly an increase of debate around introducing one: the last edition of the Canadian Tax Foundation journal had three articles about one in it, and the current Minister for Finance Christia Freeland is a huge advocate for solving wealth disparity in Canada.

Italy:

Italy was one of the first European countries to be impacted by COVID-19. They were quick to debate how to raise funds, amplified by the fact they they have a very limited wealth tax, they have a very low inheritance tax, and they have a very large public debt of 4.3 trillion euros. It was immediately evident that they needed revenue. 

A proposal was made by the left wing party for the introduction of a wealth tax on a net basis, for net assets greater than 500,000 euro with progressive rates from 0.2% to 3% (the latter on assets greater than a billion euro).  The proposal was withdrawn after a month. 

At present, there are arguably four indicators that point to the fact that no wealth tax is going to be introduced in the short or medium term:

1. Italy was allocated 209 billion euros in the EU recovery plan, which is very large in proportion to their economy. 
2. The EU plan to finance the recovery indicates two taxes which will need to be introduced by member states: one is a digital service tax, and the other is a green tax. There is no mention of wealth tax.
3. The European central bank is purchasing old Italian government bonds and financing public expenses without issues.
4. The new possible Prime Minister is clear in his position that the way to cope with the crisis is not to increase taxes, but to work on public debt and the cancellation of private debt.

UK: 

The focus of the government to date has been on spending money, not on raising it. However, there has been an increase in debate: such as the group formed in December 2020, the Wealth Tax Commission. The discussion around the introduction of a wealth tax is arguably gaining traction in a way that it hasn't before. It is not necessarily likely, but is becoming more of a realistic possibility. More likely is an increase in capital gains tax, which has historically had a rate of 20%, but this could be increasing given the top rate of income tax to about 45%. 

In summary, around the world there is increasing scrutiny of private wealth. With increased transparency, changing taxation and changing governmental policy, the private client lawyer is in for a very busy few years indeed.