Spanish government is considering a tax on any severance pay earned past the legal twenty-day allotment. This was precisely how the Spain Redundancy Procedure (ERE following the Spanish abbreviation) worked until Zapatero, nodding to the labor unions, leveled the field by extending the allowable tax-free time period to 45 days.
Now that reductions to layoff costs are being considered, it seems like a wise measure to collect taxes from those receiving the most compensation. For one thing, an extra effort to collect revenues would have little effect on business activity.
That said, the new tax would decrease the incentive of longer 45-day severance packages. In some cases, the tax might negatively impact companies if labor unions, who are conscious of the fact that ultimately workers will be receiving less pay, would then try to negotiate higher compensation on workers' behalf.
The tax initiative falls within the framework of broader labor reforms that should attempt to liberalize a Spanish market that is rigid and inefficient. But the reform is not going to galvanize employment, even less so because of what De Guindos confirmed yesterday: the Spanish economy is likely to fall back into a recession that will force government to change its forecasts and make further cutbacks that will exacerbate recession effects.
But at least competition is being encouraged and we are trying to do away with structures that hinder our country's ability to adapt to the current economic climate by more equally distributing the economic pressures and sacrifice.
