The fiscal battle between the autonomous communities is focused this year on personal income tax and inheritance tax. More than half of the communities have announced reductions in income tax and seven of them in inheritances. The situation of the last few months contrasts with that which occurred in 2022, when communities governed by the PP such as Andalusia or Galicia launched a race to eliminate property taxation as Madrid had done years ago.
The introduction of a minimum wealth tax through the creation by the Spanish Government of the new tax on large fortunes just before the end of 2022 changed the battlefield. "If you have a wealth tax that is covered by that of large fortunes, communities seek to differentiate themselves in inheritances and donations", reflects Valentí Pich, president of the General Council of Economists.
As detailed in the attached table, seven autonomous community governments have carried out some type of adjustment (always downwards) in inheritance and donation tax. José María Durán Cabré, director of the Institut d'Economia de Barcelona (IEB)-UB, explains that "the alternation in some regional governments led to a reduction in inheritance tax". The clearest cases are those of Valencia and the Balearic Islands, governed by the PP since May, where the fastest and most intense reduction has occurred.
In the case of personal income tax cuts, regional governments have justified them as a way to compensate for the negative effects of inflation, which remains very high. When prices rise, many companies tend to raise employee compensation. The very design of the income tax – which is progressive – means that a salary increase that only aims to compensate for inflation leads to a worker paying more when jumping from one bracket to another. The way to avoid this is to carry out a deflation of the sections. This measure consists in raising the sections in the same proportion as inflation. If it is done, when the worker's salary is raised, he pays the same rate of income.
Between 2023 and 2024, the communities that have carried out some type of deflation are Madrid, Navarre and the Basque Country. In other communities, what has been done is to reduce the sections or directly reduce the rates to be paid for the autonomous section. Another measure that facilitates the reduction of personal income tax is to raise the family minimums. It is the limit up to which the citizen is exempt from taxation. The communities that have increased them are seven: the two regional councils plus the government of the PP Andalusia, the Balearic Islands, Galicia, Madrid, La Rioja and Valencia.
After years of refusing to lower taxation, the Catalan Government of ERC committed in December to cut the regional segment for low incomes. The problem is that the measure will not be carried out until there are budgets from the Generalitat. And for now it doesn't seem like it should be imminent. Last year, the public accounts were approved by the Government on February 2 and came into force the following month, so this 2024, if the approval is finally given, they will come into operation from the second quarter. In any case, the Minister of Economy, Natàlia Mas, promised that the discount would be retroactive to January 1.
The movement of the Government or another regional executive cannot compete with the fiscal legislative hyperactivity of the popular president of the Madrid community, Isabel Díaz Ayuso. This week he proposed reductions of 1,000 euros in personal income tax for house renters and 300 euros for taxpayers with variable rate mortgages. For those who have it at a fixed rate, nothing. Although last year it was forced to reinstate the wealth tax to capture the revenue that would have gone to the State via the tax on large fortunes. In November, it deflated the sections for 2023 but not yet for 2024, as the two regional councils have done.
Desiderio Romero, Funcas researcher, believes that "the deflation of personal income tax should be automatic and immediate" to compensate for inflation. The impact on taxpayers occurs whether inflation is 3%, as in 2023, or 8% as in the previous year. Romero remembers that not deflating is a way to increase fiscal pressure without having to approve anything in Parliament.
"In general, the debate is more ideological than anything else," reflects Romero. Durán Cabré believes that the taxation of taxes that are normally paid once in a lifetime, such as inheritance, cannot depend on the political color of whoever governs. In Valencia, for example, the reduction in successions applies from the day after the regional elections, last May. "Successions has a redistributive function that is not being fulfilled with the constant change in regulations", according to Durán Cabre.
Valentí Pich believes that successions should have a base fee that is not very high but that it should be a minimum for all communities. Unlike other taxes such as property taxes, which very few countries have, inheritance taxes are practically universal in all communities.
Currently, in Spain and with the latest reductions, a symbolic amount is paid in the case of descendants and adoptees under the age of 21 in Andalusia, Aragon, Asturias, the Balearic Islands, the Canary Islands, Cantabria, Castile and Leon, Extremadura, Galicia, Madrid, Murcia, La Rioja, Valencia and the regional territories. In the rest (Catalonia governed by the ERC and Castile-La Mancha by the PSOE), practically nothing is paid if certain liquidated base thresholds are not exceeded. But everything can change. Junts demanded last week from ERC that the inheritance tax be eliminated. The race continues.
