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COST OF LIVING

How inflation in Spain is driving working people to the ‘hunger queues’

With a secure job as a bricklayer and monthly wages of €1,200, Hugo Ramírez never thought he would need the help of charity to feed his family. But spiralling living costs in Spain mean the 44-year-old father of three has been left with no other choice.

How inflation in Spain is driving working people to the 'hunger queues'
People queue up to get food next to Aluche neighborhood association local in Madrid on November 19th 2022. (Photo by PIERRE-PHILIPPE MARCOU / AFP)

“We see prices increase every week, even for basic goods,” he told AFP as he stood before wooden crates of fruits and vegetables at the entrance of a residential building in Madrid.

Driven by the war in Ukraine, Spanish food prices jumped 15.4 percent in October from a year earlier, their biggest increase in nearly three decades, according to the National Statistics Institute.

Sugar was up 42.8 percent, fresh vegetables rose 25.7 percent and eggs 25.5 percent as staple items soared.

In a bid to ease the pressure on squeezed households, Socialist Prime Minister Pedro Sánchez’s government — which faces an election next year — has spent billions of euros on extra welfare spending.

Every Saturday Ramírez, who is from Venezuela, comes to this food bank set up by a neighbourhood association in the working-class district of Aluche during the pandemic to pick up food supplies.

He earns €1,200 a month while his wife makes €600 working part time as a domestic helper.

After paying their monthly rent of €800 and €300 for utilities “there is not much left,” he said.

Driven by the war in Ukraine, Spanish food prices jumped 15.4 percent in October from a year earlier, their biggest increase in nearly three decades, according to the National Statistics Institute. (Photo by PIERRE-PHILIPPE MARCOU / AFP)

The line of people seeking help stretched far down the street. Many of them are immigrants.

Similar lines, dubbed “hunger queues”, can be seen regularly outside of other food banks across the country.

Insufficient salaries

“Every week we see new families in need, especially since the start of the war in Ukraine” in February, said Raul Calzado, a volunteer with the Aluche neighbourhood association.

Some mothers have stopped buying feminine hygiene products to be able to feed their children, he added.

The association currently offers aid to 350 households, a number Calzado expects will rise to around 400 by the end of the year.

Behind him dozens of other volunteers are busy at work, surrounded by boxes of pasta, canned goods and baby diapers.

“Some beneficiaries have no revenues. But we also have more and more retirees with small pensions or people who work but whose salaries are insufficent,” said the association’s vice president, Elena Bermejo.

One in seven homes in Spain suffers food insecurity, meaning inadequate or insecure access to food due to low income. (Photo by PIERRE-PHILIPPE MARCOU / AFP)

Among the measures Spain has introduced are subsidies for transport, a one-off payment of €200 for the unemployed and a 15 percent increase in pensions for the most vulnerable such as widows.

But charities that work with the poor say the measures are not enough.

“For some families, even buying a litre of olive oil or a kilo of lentils has become difficult,” said Bermejo.

Donations down

Food banks, which had started to see dome relief as people returned to work after pandemic shutdowns, are struggling to meet the growing demand.

“With inflation, we are seeing a decrease in donations” since people have less money, said the spokesman for the Spanish Federation of Food Banks, Luis Miguel Rupérez.

And higher prices also mean food banks can’t afford to buy more food themselves, he added.

The federation collected 125,000 tonnes of food since January, compared to 131,000 tonnes during the same time last year.

Food banks provide help to over 186,000 people in the Madrid region, and 1.35 million in total in Spain — roughly the same population as Barcelona, the country’s second biggest city.

One household in seven in Spain suffers food insecurity, meaning inadequate or insecure access to food due to low income, according to a study published earlier this year by the University of Barcelona.

“I hope it will get better but I’m afraid that won’t be the case,” said Ramírez as he clutched a bag of groceries from the food bank.

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TAXES

How foreigners in Spain’s capital can pay less tax with the new Mbappé Law

The regional government of Madrid is finalising the approval of the so-called Mbappé Law, a very favourable new personal income tax regime for foreigners who settle and invest in the Spanish capital.

How foreigners in Spain's capital can pay less tax with the new Mbappé Law

Similar to Spain’s Beckham Law, introduced in 2005, this piece of legislation is named after a famous footballer who will be the first to benefit from lower tax rates, as will other foreigners in Madrid.

Kylian Mbappé is a French footballer who currently plays for Paris Saint-Germain, but looks set to sign for Real Madrid this summer.

The objective of the right-wing Madrid government of Isabel Díaz Ayuso is to attract more foreign investment to the region with beneficial fiscal rates.

READ ALSO – Beckham Law: What foreigners need to know about Spain’s special tax regime

Unlike the Beckham though, the Mbappé Law is only designed to benefit foreigners who move to the region of Madrid, it’s not open to those who want to move elsewhere in Spain.

Also unlike the Beckham law, foreigners will only be able to reap the rewards of the Mbappé Law if they invest money into the region. This could be in the form of investments in companies or in vehicles, but it cannot include investments in property.

Specifically, applicants will be able to deduct 20 percent of all the money they invest in the Madrid region.

The law applies to regional personal income tax, which accounts for approximately half of entire tax payments in Spain, since the other part corresponds to the State’s collection.

Normally, a foreigner like Mbappé will be taxed in the highest income bracket, as they will earn well over €300,000 gross per year.

When the law is finally approved however, Mbappé could avoid paying the regional income tax entirely, in the event that 20 percent of his Madrid investments represent the same amount that he would have had to pay in taxes on his salary.

READ ALSO: Why you should move to this region in Spain if you want to pay less tax

How will the Mbappé Law work?

For example, if Mbappé earned €40 million gross (not his actual salary), he would normally be charged €18 million in personal income tax.

Of this, 24.5 percent would correspond to the state tax, and this would have to be paid as normal. This means the state would collect €9.8 million from him in tax.

The change happens with the rest of the tax – the regional tranche. If he doesn’t make any investments, which now seems unlikely, he would have to pay €8.2 million in tax to Madrid.

If on the other hand the French superstar invested €40 million in Spanish companies or state bonds – he could deduct €8 million, which represents 20 percent of that amount.

This would mean that Mbappé’s tax rate would remain at 24.5 percent, a marginal rate that is slightly higher than the personal income tax for a worker who earns €20,000 and receives around €1,300 net per month.

As a percentage, of course, the amounts in Mbappé’s case are going to be huge. So, instead of paying €18 million in total, he would only pay €9.8 million.

Overall, this legislation signals that Madrid will become even more attractive to foreign investors.

By contrast, those who move to Catalonia will have to pay 25.50 percent in regional income tax, which added to the 24.5 percent of the state tax would increase personal income tax by half. So as a Real Madrid player Mbappé would earn €30.2 million, but if he signed for Barça he would pocket €20 million.

What’s the catch?

There are a few caveats to the new law, which primarily depend on how long you stay in Madrid. The new regulations establish that you have to stay and live in Madrid for a total of six years. If you leave before those six years are up, then you will be forced to return part of the tax savings you made.

What does this mean for Madrid?

The regional government of Madrid estimates that 30,000 foreign investors could choose to move to the region specifically in order to benefit from the new law and that it will cost the public coffers €60 million per year.

The idea is that Madrid will continue to attract foreign investment. Madrid’s leader Isabel Díaz Ayuso recently claimed that: “Two out of every three euros that arrive in Spain as an investment from abroad do so in projects that are developed within the Community of Madrid. In the last decade, the flow of investments has doubled”.

Madrid already has some of the best tax incentives in Spain. Residents pay less tax on their income, assets, inheritance and property transactions and conditions are beneficial to high-income earners in particular.

Financial experts agree that Madrid is among, if not the top region, with the most lenient tax system in the country, and when the Mbappé law comes into force, the region will benefit from even more incentives.

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