Spain ranks low in the OECD on protection of private property

Spain ranks among the last among OECD countries (27 out of 36 countries) in protecting private property, both physical and intellectual. This is evidenced by the International Property Rights Index developed by the Property Rights Alliance, an alliance of 118 "think tanks." The Spanish version of the index was published by the Institute for Economic Research (IEE).

Spain also lags behind the European Union average with a score of just 6.5 out of 10, while EU countries received 7.1. Economist Sari Levy-Carciente, coordinator of the International Property Rights Index, explains that this index, which is designed to measure the strength of the existing legal and institutional framework of property rights in each country, shows a clear positive correlation with a number of indicators representing the progress of the economy and society.

Economic progress and protection

"When governments violate property rights, there are interventions in the dynamics of supply and demand, distortions in the market, displacing some activities or artificially raising the cost for others," says Iñigo Fernández de Mesa, president of the Institute for Fiscal Studies (IEE).

The relationship between economic progress and the protection of property rights, Gregorio Isquierdo, director general of the IEE, emphasizes that "there is a close relationship between economic progress, close to GDP per capita, and the protection of property rights, the correlation is of the order of 82%, while in the case of investment (also per capita) the correlation is 74%".

In this regard, Fernández de Mesa believes that "governments must act correctly, because a framework that is not considered a guarantor of these rights reduces and blocks innovation and entrepreneurship." He also says that "property rights are one of the key factors that positively influence a country's economic progress, there is a strong positive correlation between protection against the risk of confiscation and the development of GDP per capita. The protection of rights such as these is a key institutional element in foreign investment decisions. "

Three aspects are assessed

The global index takes into account three separate aspects:

• Legal and political environment (judicial independence, rule of law, political stability and control of corruption), which places Spain in 28th place (6.0 points);
• protection of physical property (physical property rights, Property Registry and access to finance), in which Spain ranks 29th (6.6 points), thanks to the outstanding performance of the Property Registry, offset by difficulties in access to finance (4.4 points), according to the World Economic Forum's Global Competitiveness Index;
protection of intellectual property (intellectual property rights, patent protection and anti-piracy), which improves Spain's position in the Global Index, it ranks 25th (6.7 points).

Spain stops on defense. "The 2019 valuation confirms the stagnation of our country over the last decade, as there has been virtually no improvement in the protection of property rights and, in fact, the 2019 valuation is slightly lower than before the crisis," explains Fernández de Mesa. All in all, the 2019 index revealed an average global score of 5.8 out of 10.

Confiscation taxes

Gregorio Isquierdo explains that the German Constitutional Court has established that taxes (personal and property) cannot exceed 50% of income because the use of property serves both private benefit and the national interest. On the other hand, France, following the opinion of the Constitutional Council in 2012, prohibits taxes (personal and/or property) exceeding 75% of income. However, the IEE believes that Spain has significant tax hurdles, such as the property tax, the design of which could result in a total tax in excess of 100% of income. Even a lesser degree has been declared unconstitutional in the German and French Constitutional Courts. Regarding the Inheritance and Gift Tax, they argue that the principle of non-appropriability in tax matters is violated because it is a tax that easily reaches a level that forces taxpayers to give up their right to private property. Specifically, the progressive taxation scale, together with the application of multiplier factors depending on kinship and previous estate status, could lead to a marginal inheritance and gift tax rate of up to 81.6% in Spain.

"Occupation of residential property

"The nature of property law is incompatible with the forced dissection of the use and enjoyment of property in relation to the wishes and will of the legal owner, this unfortunately happens in some cases," says the IEE director general. "The clearest example is the case where the institutional environment allows the occupancy of residential units, which prevents the owner from having access and exercising his property right. In fact, when one speaks of empty dwellings justifying interventions in ownership, one forgets that this circumstance is often due to problems in the institutional environment, such as tight deadlines or imbalances of rights that do not allow owners to obtain a benefit commensurate with the risk," Fernández de Mesa explains. "In this context, so-called mandatory temporary assignments, which are in fact temporary confiscations of the entire asset, are clearly abused, paying an administrative price that is always lower than the actual benefit it will bring and not fully recognizing the unavailability it entails in relation to the asset," concludes the IEE president.