The President and the General Director of the Institute of Economic Studies, Íñigo Fernández de Mesa and Gregorio Izquierdo, respectively, have presented the report ‘Private property in Spain. Property Law Index 2019 ’, together with Professor Sary Levy-Carciente, its international coordinator. The opinion of the IEE is presented in a first part, which has been entitled 'Private property as a guarantee of economic progress in Spain', which states that the right to property is an essential right, and forms one of the basic institutions on which modern societies are established, characterized by progress, economic prosperity, peace and social order, all the more, the more protection they guarantee this right. The second part of the report, the “Property Law Index 2019”, prepared by the Property Rights Alliance and published by the Institute for Economic Studies, confirms the effects that adequate protection of property rights can have for prosperity of a society. Thus, this index, which aims to measure the strength of the existing property rights framework in each country, shows a clear positive correlation with a battery of indicators that represent, in one way or another, the progress of an economy and a society.
After analyzing 129 countries, the Property Rights Index shows, in 2019, an average global score of 5.8 out of 10 points. By categories, the one referring to the legal and political environment (LP) obtains the lowest score of all (5.1), while the physical property (PF) receipt receives the best rating (6.4) and the protection of Intellectual property (IP) appears in an intermediate zone (5.5). If we look at the results for OECD countries, we find that the leading IIDP 2019 country is Finland, with a score of 8.8 points. Analyzing the relative position of Spain within the OECD economies, it is observed that our country appears in 27th place in the index, with a rating of just 6.5 points out of 10. The note harvested in 2019 confirms the stagnation of our country in the last decade, since there have been hardly any improvements in the protection of property rights and, in fact, the 2019 rating is slightly lower than the one registered before the crisis.
As the report itself shows, there is a clear positive correlation between this Property Rights Index and a battery of indicators that represent, in one way or another, the progress of an economy and a society. Thus, the close link between economic progress, approximated by GDP per capita, and the protection of property rights, with a correlation of the order of 82%, is evidenced, while in the case of investment (also per capita ), this correlation reaches 74%.
A framework that provides legal certainty, certainty and confidence about the ability to enjoy in the future the performance of the activities and decisions that are taken today, tends to configure incentives prone to the correct allocation of capital, as well as to stimulate innovation and entrepreneurship, and therefore, will mean an improvement in productivity and long-term growth. From a business point of view, there is no greater social function for property rights than the satisfaction of the needs and preferences that consumers freely express in the market. For this reason, governments must act in the right way, since a framework that is not reputed as a guarantor of these rights will curtail and block innovation and entrepreneurship. Property rights constitute one of the key factors that positively influence the economic progress of a country, with a strong positive correlation between protection against the risk of expropriation and the evolution of GDP per capita. The protection of rights like this is the main institutional element in foreign investment decision making.
Well-defined property rights, protected by law and freely transferable, constitute the obligatory climate for voluntary cooperation between the different agents, and, therefore, for the adequate exercise of the business function and economic activity, contributing to the individual covers his basic security needs, but also that he can pursue his vital projects and his self-realization. So much so, that property rights allow reconciling two seemingly incompatible movements such as competition and social cooperation. All this will result in greater economic growth, wealth generation, long-term well-being, stability and social peace.
It is shocking to attend today a renewed boom of some authors who propose the taking of capital for the sake of an alleged redistributive justice through measures of expropriation court, camouflaged under proposals supposedly of a tax nature, as, for example, when an imposition is proposed equity at the rate of 90%. It should not be forgotten that, if these proposals were implemented, private property would be denied and undermining the rule of law, intended to safeguard people and property, the ultimate reason for the existence of government.
Article 31 of the Spanish Constitution requires that the contribution of citizens to the maintenance of public expenditures is made through a fair tax system, inspired by the principles of equality and progressivity, which, in no case, will have confiscatory scope. The constitutional prohibition is a guarantee against possible abuses in the progressiveness of the system, but it is inserted in the protection of the property right. What is prohibited in the Constitution is the elimination of the private economy through taxes. There cannot be a tax so burdensome that, without totally destroying private property, it will produce this effect through a tax with confiscatory scope. The Constitutional Court has stated that "the prohibition of confiscatoriness implies incorporating into the tax system another logical requirement that requires not to exhaust the taxable wealth"; however, our court does not impose any limits from which a certain tax (or set of taxes) can be considered confiscatory as has happened in other legal systems. Thus, the German Constitutional Court has established that taxes (personal and / or property) cannot exceed 50% of the rent, since "the use of the property serves, equally, the private benefit and the national interest"; For its part, France, after the opinion of the Constitutional Council of 2012, prohibits taxes (personal and / or property) above 75% of the rent.
The Property Tax, which was created on a census basis, has ceased to make sense after the progress in the computer control means available to the Administration. Likewise, the design of the tax can cause the sum of the Property Tax to exceed 100% of the income. For much less, the German and French Constitutional Courts have considered it unconstitutional. In the Tax on Inheritance and Donations (ISD) there is a clear violation of the principle of non-confiscation in tax matters, since it is a tax that easily reaches extremes that oblige taxpayers to dispense with their right to private property. Specifically, the progressive tax scale, together with the application of multiplier coefficients based on kinship and pre-existing equity, can bring the marginal rate of the ISD in Spain to 81.6%.
A special case of infringement of property rights is the so-called indirect expropriation, standardized expropriation procedure whereby the Administration physically deprives an owner of part or all of the content of the property right. Indirect expropriation implies a de facto expropriation through a regulatory change that, at the very least, reduces the value of the property and, sometimes, completely eliminates it, leading to a real regulatory confiscation. In these cases, it will be necessary to analyze the consequences of said regulations to determine whether the regulation, although formally valid, is excessive, and can be considered, from an economic point of view, as equivalent to an expropriation.
The nature of the property right is incompatible with coactively decoupling the use and enjoyment of a good with respect to the wishes and wills of its rightful owner, an approach that, sometimes, unfortunately is made. The most visible case occurs when the institutional framework enables the so-called housing occupation processes, which prevent the owner of the property, from the use and enjoyment inherent in his property right. In fact, when talking about empty homes to justify intrusions to the right to property, it is forgotten that this circumstance is often due to problems of the institutional framework, such as, for example, the rigidities of deadlines or imbalances of rights, which prevent its owners obtain a return according to the risk. In this line, the so-called obligatory temporary assignments, which are nothing but temporary expropriations for the total of the asset, seem to be an abuse, paying an administrative price that is always below the usufruct and that does not fully recognize the unavailability of the asset.