Madrid to coerce regions into accepting wealth tax

The government plans to strong-arm dissenting regions into accepting the re-imposition of a tax on the rich, administration sources said Monday.

A number of regions controlled by the conservative opposition Popular Party (PP) and Catalonia, which is in the hands of the center-right nationalist bloc CiU, have come out against levying the tax again, while Extremadura, the Canary Islands, Andalusia and Navarre are in favor.

The Cabinet is expected on Friday to pass a decree reviving the tax, which effectively went into abeyance in 2008 when the government granted 100-percent relief on it. Since the tax is levied at the regional level, the central government does not have time to rejig the legislation re-imposing the tax at the national level before general elections due on November 20.

However, in exchange for dropping the wealth tax, the government has been compensating regions for the resulting loss of revenues. Those regions this time around that decline to re-impose the tax will not have the lost income made up to them. That would produce a further funding headache for cash-strapped regions when they are already under pressure to cut spending further to meet the deficit targets set by the central government. Over half the country's 17 regions failed to meet their fiscal targets last year. Zapatero decided not to enforce the wealth tax in 2008, arguing that it was unfairly putting a drag on the middle classes.

At the time, the PP welcomed the decision. The tax generated over two billion euros in 2007.

The government has yet to decide the threshold level for when the tax becomes effective, although it is expected to be set at a level that affects only the wealthiest. The re-imposition of the tax is on the political agenda of the head of the Socialist slate in the forthcoming election, Alfredo Pérez Rubalcaba. Opinion polls suggest the PP will win comfortably.