MADRIDThe tax puzzle in Spain is about to end. Not only because it drags along an autonomic financing model that has expired since 2014, but because the State does not face an in-depth fiscal reform that Brussels is even asking for. Pompeu Fabra University academic Guillem López Casasnovas emphasizes this in a conversation with ARA. Casasnovas, precisely, was part of the committee of experts for tax reform in charge of drawing up a proposal for tax reform in the State. The war in Ukraine, however, left that document in standby .
This past week, the issue has been put back on the table, which has generated a “cross debate”, points out Casasnovas, who remembers that “they are two different things”: the autonomous financing model and a tax reform in Spain .
Let’s go to Pams. Taxation has returned to the headlines since the Andalusian president, Juan Manuel Moreno Bonilla (PP), announced a reduction in some of the taxes that are the responsibility of the communities. The most important are: a part of the income tax (IRPF) – shared with the State; inheritances and donations; heritage, and heritage transmissions.
Among the most striking measures of the Andalusian president is the 100% bonus of the wealth tax, as well as the deflation (adjusting the income to inflation) of 4.3% of the first three sections (up to 35,200 euros ) of the autonomous part of the personal income tax. In the first of the cases, those with a lot of wealth benefit, while in the second, 82% of the population benefits, Moreno assured.
What does it mean? Let’s take the example that deflates to 4% a section up to 15,000 euros in which 14% is paid. This means that, once deflation is applied, 14% will be paid up to 15,600 euros. In other words, it adjusts, downwards, what the taxpayers will have to pay because the cost of living, the result of inflation, has increased. Now, technically this also affects high incomes if the highest income tax brackets are not touched, as they are dragged down. “The only way to compensate for the fall in revenue is to increase the high tranches,” pointed out sources from the Ministry of Finance of the Spanish government, very critical of the measure.
Andalusia’s main argument for lowering taxes has been to help families and businesses deal with the current price crisis. “It is a model based on the fiscal vacuum that populism needs to move forward,” criticized the Minister of Finance, María Jesús Montero, while attacking “the fiscal shamans and fans of [l’economista i assessor de Ronald Reagan] Laffer”, which bets precisely on lowering taxes as a way to collect more.
Behind the Andalusian announcement, however, a spiral has been generated: Murcia, Madrid, Galicia and Castilla y León, all of them communities governed by the PP, plan to deflate or lower the IRPF sections or to subsidize, even more, the ‘patrimony tax, among other measures. This, however, also means a loss of income for all communities. “I don’t think it’s time to cut taxes. The public debt is high, the rates [d’interès] they go up and we have a chronic deficit that doesn’t allow us much joy. What must be done is to improve progressivity and selective aid policies,” points out Pompeu Fabra University economics professor Antoni Durán-Sindreu. “A tax cut is never a country project at a time when you don’t know how to cover current expenses,” adds Casanovas.
Who has been championing this strategy for years is Madrid, the community with the lowest personal income tax rates and which will now deflate all income tax brackets. Murcia will also deflate the first four sections of the autonomous part of the IPRF (up to 60,000 euros). Galicia, apart from touching the property tax (increases the bonus up to 50%), will deflate those sections of the personal income tax up to 35,000 euros. In the case of Castile and León, the reduction of personal income tax, among other measures, had already been announced at the beginning of the legislature.
Now, the communities under the mandate of the right have not been the only ones to touch the taxes. There is also the socialist Valencian Country, which initially caused discomfort in Moncloa. But its president, Ximo Puig, has not chosen the path of deflation, as those of the PP have done. Puig has announced a new regional rate (it has yet to be specified) of the personal income tax for incomes below 60,000 euros. However, the community presided over by Puig has always stood out for having the highest maximum personal income tax rate (54%). Cantabria, La Rioja, Asturias, Aragon or the Balearic Islands, all socialist communities, have not yet opened this door. Yes, Extremadura has done it, which has chosen to reduce taxes on services and products such as fishing licenses. Nor Catalonia. By contrast, the Basque Country approved a tax cut in the summer.
Years of stagnant reforms
“Everything that is happening now started years ago with the PP and we have lost the north,” says Durán-Sindreu to ARA. Casanovas speaks in the same vein, saying that “it is not right to blame only the autonomous communities”. “What is happening now is the result of the delay in tax reform,” he adds. The economist, in fact, believes that the current tax “debacle” will not be solved until the State faces this reform which, among other things, includes a possible harmonization of taxes such as property taxes because 100% deductions such as of the Community of Madrid do not make him disappear. In fact, from the Ministry of Finance they argue that the approved tax package is a first step.
But what link does this have with the regional funding model? This system is endowed with resources that come from three funds (global sufficiency, the guarantee of fundamental public services and convergence; understanding them is a heroic task). This money is distributed based on the spending needs of the communities. Some, such as the Valencian Country, have repeatedly reported that they were underfunded, that is to say, that they lacked the resources to meet the expenditure. In this scenario, it is logical that, in the face of tax cuts, the Spanish government asks them to “be consistent, because the vast majority request money from the State”. Unlike what happens with tax reform, here there is not a debate of “ideological blocs, but territorial ones”, says Casanovas. “The solution to regional financing is not clarified by ballot boxes, but by how you align the interests of the baron [del partit] with the central government”.