He Government is taking the first steps to launch a financial product that aims to convert Spaniards from the status of savers to that of investors. The Ministry of the Economy has put out for public consultation the creation of an investment account for … that the money that is now kept in deposits and in cash be moved to the capital markets to finance European businesses.
This project is promoted by the European Commission, which a few months ago issued a series of recommendations on what these accounts should be. Generally speaking, these products will be accounts offered by the financial sector (banks, insurance companies, fund managers… although this remains to be defined) through which Spaniards will be able to invest for the long term in financial assets in a simple and simplified wayand predictably with tax incentives although the Executive has not yet revealed which ones.
The latter, tax incentives, will be the most complex to integrate into the Government’s ideological scheme since what the Executive has precisely done is sink long-term savings and investments into individual retirement plans, leaving the contribution and deduction ceiling at only 1,500 euros per year; Contributions fell by 63%. The aim was at the same time to promote business plans, but the result was that it is now difficult to save on individual plans and business plans have not taken off either.
Commission urges countries to establish tax benefits in the form of exemptions or a flat tax rate
In any case, no one doubts that these accounts should benefit from tax advantages because Europe recommends it. As KPMG recalls in a recent document, the EU recommends exemptions, deductions or deferral of taxation of profits generated until the moment of withdrawal from the account, as well as the possibility of applying a fixed tax rate on the assets included in these accounts. It also highlights the importance of establishing a framework that simplifies compliance with the tax obligations arising from having this account.
European companies
“The channeling of citizens’ savings towards the capital market is one of the priority objectives of the Savings and Investment Union. This aims to diversify the sources of financing for European companies, by promoting their growth, as well as innovative economic models. Likewise, it is anticipated that households can benefit from attractive investment opportunities, which allow them to improve their resilience and face vital events such as retirement”, states Economía in the public consultation. On the one hand, to favor the financing of European companies and, on the other hand, so that citizens can benefit from the returns that the market usually offers in the long term.
The problem at the moment is that in Spain (and in Europe in general) there is little investment compared to all the money available; Additionally, although there used to be individual pension plans, they are now heavily taxed.
Government sanctions on pension plans have caused savings and investments in these products to fall by more than 60%.
Thus, the Spanish keep around 1.1 trillion euros in deposits and liquidity, according to the latest data from Inverco; In total, there are 10 billion deposits in Europe. The goal is for all the remaining money to be invested in the markets. What is sought is for citizens to be able to access a “diversified portfolio of financial instruments (shares, bonds, investment funds or other eligible products)offered by approved financial intermediaries, such as banks. “The Commission’s recommendation presents these accounts as a stable long-term container, with simple rules, predictable costs and simple processing, which reduces entry barriers for small investors, improves their financial results in the medium and long term and strengthens their protection thanks to a clear, standardized and easily understandable architecture,” explains the department headed by Carlos Body.
Mobilize savings
These products will be accounts offered by the financial sector (banks, insurers, fund managers… although this remains to be defined) through which Spaniards will be able to invest long-term in financial assets in a simple and simplified way, and possibly with tax incentives.
Goals
These accounts are created, on the one hand, to finance European companies beyond traditional bank credit and, on the other hand, so that citizens can benefit from the profitability that the markets usually provide in the long term.
Unknown
The EU recommends tax incentives for these accounts to succeed, but the government has not yet revealed what measures it will adopt. The Executive also asks in its public consultation whether it is necessary to establish a minimum amount to open the account, whether it is necessary to set a maximum investment limit; He also questions the costs and commissions they would benefit from, the financial assets in which it would be possible to invest and the advisability of setting a minimum investment in European companies.
These types of accounts are already developed in the regulations of other countries like France, Denmark, Finland, Italy…and also outside the EU, in territories like the United Kingdom or Japan, with tax advantages. All these measures aim to “encourage the participation of individuals in capital markets and strengthen the stable financing of the economy through long-term savings”.
The government therefore plans to create a “simple and stable” regulatory framework to finance the European economy, as other countries are doing. Likewise, the public consultation highlights that today Spanish savers are faced with a heterogeneous product offering, with different characteristics, which makes investment difficult.
Lots to define
What would they look like and what would these accounts be invested in? Currently much of its design remains to be definedincluding its taxation, and to do this, they ask for ideas from the sectors concerned (mainly the financial sector). The Executive asks whether it is necessary to establish a minimum amount to open the account, whether it is necessary to set a maximum investment ceiling, whether it must be limited to one account per person; It also questions the costs and commissions that these accounts should include, which financial assets should be eligible to invest in them, whether a minimum investment should be set in strategic sectors, the minimum investment that should be made in European companies or whether a minimum account holding period should be required.
On some of these aspects, the EU is already providing some guidance. For example, the Commission is considering the possibility of requiring a minimum investment maintenance period of at least five years. A minimum investment of 70% in EU assets is also recommended. All this has not yet been finalized and it is expected that the government will be able to give the green light to its draft account in the coming months.
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