Spain Acts on Inflation

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Spain Acts on Inflation
By Jerry Brownstein
Spain has taken action to regulate businesses that have caused inflation by unfairly raising their prices. These companies give many reasons for the increased inflation during the past year: the conflict in Ukraine, supply chain issues, etc., etc.. But economists point out that these factors have had only a minor effect, if any. The real cause of inflation is corporations using those factors as an excuse to make record profits by raising prices. The proof of this is a simple equation: If the excuses for inflation had raised the costs to producers, then their profits would be normal. The higher prices would be offset by higher costs, so profits would be similar to past years. But in fact, the targeted companies have used the high prices to make profits that are far in excess of what they would normally have made. 

The answer to this kind of economic injustice is called an “excess profits tax”. Profits that were made through unwarranted price rises are taxed at a higher rate, and that the money is used to help those who are most hurt by inflation. Spanish Prime Minister Pedro Sanchez says: “The profits from rising prices must be returned to citizens rather than fattening the salaries of big business leaders. We will not allow the suffering of many to be the gain of individuals.” To accomplish this goal, the government has instituted a two-year excess profits tax on large companies that do more than one billion euros of business per year. This will include energy firms, financial institutions and other businesses that are unfairly benefiting from rising prices. 

Sanchez went on to say, “Inflation is a serious illness that impoverishes everyone, especially the most vulnerable groups.” The new tax on excess profits should generate around seven billion euros over the next two years, and that money will be used “to protect the middle class and the workers.” Part of the plan is to put an upper limit on rent increases, and to reduce VAT on electricity from 10% to 5%. In addition, low pensions will be raised by 15%, the minimum wage will be increased, and public transport will be free of charge.


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