Ode To Joy

Sabadell is a city in the Spanish province of Catalonia. Banco Sabadell was celebrating its 130th year anniversary, and it wanted to do something worthwhile and memorable for the citizens of the city. Banco Sabadell did.

This is an exceptional street performance. If it sounds familiar, it is because you are hearing Beethoven's Symphony Number 9 Ode to Joy.

We talk about tax here because we are a tax blog. However, tax is not life. Enjoy, and remember to laugh and smile as often as you can.

Did You Hear That Spain Is Taxing The Sun?

It has been a while since we have played “Are They Smarter Than a Garden Gnome?” Our blog today involves a near-bankrupt government, which pressed the metal to the floor with “renewable energy” and “green” subsidies. It has now taken the preposterous – and possibly first-time-in-human-history- act of taxing the sun.

You think I am kidding. You may also think I am talking about the United States, but I am not. At least, not this time.

We are talking about Spain, one of the sunniest places in all of Europe. It is a likely candidate for photovoltaic and solar-thermal power generation – that is, solar panels. It sounds good on first hearing. That of course is before the government got involved.

In 2007 Spain had 701 megawatts of installed solar panels. I do not know if that is a lot, but I do know that the Spanish government wanted to increase the amount. Not having a Solyndra or Satcon Technology on which to throw away tax money, they decided to push solar power.  That meant that they paid more for solar-produced power than for other power – think coal, hydroelectric, nuclear, air draft from flocks of geese. How much more? Think 12 times more than conventional power. Yipes! The government was unwilling to pass the full cost onto the populace, even though Spanish power producers have some of the highest rates in the EU. The government instead ran up subsidy deficits now totaling 26 billion euros.

Well, they did increase solar power generation. Current production is 4,000MW, which is an impressive increase from 701MW in 2007.  

What could possibly go wrong with subsidizing solar? After all, it is renewable, environmentally sustainable and so forth.  

Well, when you are paying 12 times more than something is worth, you better not buy too much of it. Unfortunately, Spain missed this lecture. The Spanish government has its fingers all into and over its energy industry. There are mandates for clean energy, for idle gas-fired plants, for poor families and for island dwellers. As a consequence, the government is now about 35 billion euro in the hole from its subsidies. To exacerbate matters, Spain is entering its second recession in three years. The government has recently announced spending cuts and tax increases of 100 billion euros. Unemployment has reached 25 percent. Spain, strapped for cash, is now looking to cut back.

What to do, what to do?

Got it! Spain will tax the electricity produced by home solar panels. Homeowners will have to connect their panels to the grid so their production can be metered – and billed back to them, of course. The effect is to make self-generated power more expensive than power purchased from the grid. 

How much more are we talking about for an average Spanish household? Approximately 27 percent more.

Spain’s Industry Ministry justified this action by explaining that – even though you may be self-sufficient – you “benefit” by having the back up provided by the power grid. Not everyone will be affected, however – only those Spaniards living within reach of the power grid. If you live in remote areas, you will be untouched by this.

Oh, well. Maybe you can sell your power back to the grid and offset somewhat this new cost. No can do. Spain will not allow that. You will have to move to Germany if you want to sell your excess power.

What if you refuse to connect to the grid? Spain reserves the right to fine you up to 30 million euros. Yipes! There has been pushback by consumer groups clarifying that this fine was created in 1997 by a law intended for large corporations, not private individuals. Someone will have to take that theory to court, however, to test how sound it is. I can assure you that it would not be me.

The sad part is that there is nothing here that a clear-headed person could not have seen coming from a mile away, or at least since 2007. Every government benefit given in turn is taken from someone else. This is the economics of taxation, and in the end economics won out. The Spanish government is now scrambling to keep all the spinning dishes from hitting the ground.

What do you think: are they smarter than a garden gnome?

The Carrot Rebellion

You may have heard that Spain has gotten itself into an economic mess. In an effort to avoid more stringent EU austerity measures, it has increased a number of taxes. The one that interests us today is the value-added tax. The VAT on selected foods is 4%, whereas the VAT on clothing went from 18 to 21%. The VAT on theater tickets also went to 21%.

There is a village called Bescano in Catalonia. Catalonia is in the northeast part of Spain, adjacent to France, and it boasts a strong separatist sentiment. On September 11, which is Catalonia’s National Day, an estimated 1.5 million people filled the streets carrying signs such as "Catalonia, the next independent state in Europe." A recent poll showed that 51% of Catalans would vote in favor of separating from Spain.

Bescano is a small village, but it boasts an impressive theatre troupe. Problem is that one in four local residents is unemployed, which makes it difficult to sell theater tickets. Increase the VAT to 21% and you have a near-insurmountable problem. What to do?

The theater decided to sell a carrot as admission to the theatre. The carrot costs over $15, but it entitles one to free admission. The VAT on a carrot? It is 4%.

The Spanish media have called this the “Carrot Rebellion,” and there is the expected tut-tuts from government officials. Each person who does not pay his “fair share” raises the burden on everyone else, or so goes the party line. It may even constitute “tax evasion,” says one.

The theater has the support and backing of the local mayor.

My thought? No disrespect to a difficult fiscal situation, but I find it clever.