After the deflation in Andalusia and Murcia, Extremadura and Valencia are considering compensating for the rise in the cost of living
The economic crisis caused by the war in Ukraine, to which Vladimir Putin has just given another twist, and its most devastating manifestation for households, inflation, has unleashed a fiscal battle between the Government and the opposition that has the autonomies as main stage. The communities commanded by the PP have taken the lead and have announced or approved tax reductions that range from deflation –correction of the rates of the regional section of personal income tax– to the abolition of the Wealth Tax.
The regions governed by the PSOE are under pressure like this, with local elections eight months away, and some are already threatening to touch taxes. The objective of the PP is to lead the Government of Sánchez to deflate the state income tax rate, to claim the initiative as it has already done with the lowering of VAT on electricity and gas. But the territorial panorama presents variations that do not always respond to this logic of blocks.
Andalusia, Madrid and Murcia
They are the spearhead territories of the tax cuts and of the PP’s strategy in its confrontation with Moncloa. Madrid has announced that it will deflate all the sections of the regional IRPF rate by 4.1% –according to the average increase in salaries in the territory– with effect this 2022; and that it will increase the personal and family minimums by that percentage. The Murcian and Andalusian executives have already approved similar measures applicable to this year’s income statement. In Andalusia, the deflation is 4.3% for the first three sections (income up to 40,000 euros) and the same percentage for the increase in the exempt minimum; while in Murcia the cut is 4.1% for the first four sections (rents up to 60,000 euros).
Madrid has spent years with the Wealth Tax subsidized at 100%, which leaves it without effect. And this week it has been Andalusia that has altered the political agenda by announcing the suspension of the collection of this tax. Murcia has that possibility on the table and its president, Fernando López Miras, has proposed a possible suppression in 2023. From the region they affirm that the economic impact of the measure must be measured, taking into account that Murcia is one of the worst communities treated by the regional financing system.
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Castile and Leon and Galicia
They are two other popular territories in which the autonomous income tax rate has been lowered, but without deflating the tax and without using that word. In Castilla y León, the Government Council has approved the reduction of the minimum tax rate of the regional tariff from 9.5% to 9%. This same measure is the one announced in May by the new Galician president, Alfonso Rueda, and which will be incorporated into the 2023 Accounts, in order to help low-income earners cope with inflation. In addition, families with two children will be fiscally equal to large ones. “The Galician Government has its own model, with a defined path,” they explain in the community.
Galicia will continue to maintain Heritage. Until now, it applied a 25% discount and this week it announced that this percentage will reach 50% without being compared to Andalusia and Madrid, where the discount is total. Castilla y León does not consider changes in the tax. State regulations apply there, with a minimum exemption of 700,000 euros.
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Aragon, Canary Islands, Cantabria, Extremadura and Valencia
These five communities governed by the PSOE – alone or in coalition – are considering taking tax measures to counteract the rise in prices. In the Valencian Community, President Ximo Puig – who has asked Sánchez to punish the distribution of state funds to the autonomies that lower taxes – has announced that his Government is working “on a tax reform against inflation to help the working class”. His team does not respond to the question of whether this will result in the deflation of personal income tax or if other types of measures will be adopted, and they summon the general policy debate on Tuesday to find out the details of the Government’s fiscal plan.
The Extremadura Executive of Guillermo Fernández Vara has received tax proposals from other parties that are being studied with a view to drawing up the regional Budgets for 2023. Its negotiation phase has just begun with the aim of reaching “a great pact” in addition with political groups, with social and economic agents.
The Canary Islands are also in the study phase of actions that can offset the effect of inflation on taxpayers. The measures that are valued include deflation, although not only. But any initiative will have to meet two conditions: the amount that implies a decrease in collection must be manageable and its impact must be progressive; that is, to favor more the lower incomes. Aragón rules out deflation on the grounds that it has no redistributive effect, but does not renounce the adoption of other measures on personal income tax. Cantabria is in a similar situation. Asked about it, Castilla-La Mancha, another socialist autonomy, has not ruled on whether it will take measures in personal income tax.
If in Extremadura Heritage is included within the possible tax changes, the Valencian Community, Aragon, Cantabria and the Canary Islands rule out changes in a tax that, they value, does not affect a large number of taxpayers and redistributes wealth. Castilla-La Mancha has spoken in favor of promoting fiscal harmonization in Spain in fiscal figures like this one.
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Basque Country and Navarra
These two communities, outside the common regime and with complete tax sovereignty, were the pioneers in the adoption of fiscal measures to counteract the rise in prices. Navarra, led by the socialist María Chivite, deflated the 2022 personal income tax rate by 2% in a provincial law of tax measures at the end of 2021 and increased the deduction for personal and family minimums. But the opposition’s proposal to deflate the rate again with a view to 2023 did not prosper. In exchange, work is being done on the approval of an extraordinary deduction in 2022 for medium and low incomes.
In the Basque Country, also with a socialist contest in its Executive, the personal income tax rate has already been deflated twice in all its sections: first, at the end of 2021, by 1.5%; and in August, 4%. This Thursday, Lehendakari Urkullu raised a third to apply to the underlying CPI.
As for the Heritage Tax, Navarra maintains the idea of not abolishing it, because its income collaborates in the support of public services and reinforces its economic capacity. And the spokesman for the Basque Government, Bingen Zupiria, after learning of the suspension of this tax in Andalusia, declared that “Euskadi is not going to participate in the fishing of the rich.”
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Asturias, Balearic Islands, Catalonia and La Rioja
There is a group of regions that do not consider making fiscal changes. Catalonia is tackling the first phases of preparing the Accounts for 2023, but it does not seem that IRPF adjustment measures will be included. Neither in the Balearic Islands or La Rioja is any change in this tax foreseen at the moment. In Asturias they confirm that the deflation of the Income Tax would suppose a significant cost in the public coffers and public services and also in the Principality they value that it is a measure that would go against the progressiveness of the tax.
These territories also do not contemplate changes in the Wealth Tax. Catalonia points out that with another autonomous financing model that would be more favorable to them, they could afford to modify a tax that contributes more than 500 million each year to their tax income. And there are autonomies like Asturias that affect the contribution of this tax to the progressivity of the tax system as a whole.
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