The fiscal battle between the autonomous communities is fought this year in personal income tax and inheritance tax. More than half of the communities have announced reductions in income tax and seven of them in inheritance taxes. The situation in recent months contrasts with what occurred in 2022, when the communities governed by the PP such as Andalusia or Galicia launched a race to eliminate wealth taxation as Madrid had done years ago.
The introduction of minimum wealth taxation through the creation by the 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 great 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 the inheritance and gift tax. José María Durán Cabré, director of the Barcelona Institute of Economics (IEB)-UB, explains that “the alternation in some autonomous governments led to lowering taxation on inheritances.” The clearest cases are those of Valencia and the Balearic Islands, governed by the PP since May, where the most rapid and intense reduction has occurred.
In the case of personal income tax cuts, the regional governments have justified them as a way to offset the negative effects of inflation, which remains very high. When prices rise, many companies tend to raise the compensation of their employees. The very design of the income tax – which is progressive – means that a salary increase that only seeks to compensate for inflation leads to a worker paying more when jumping between brackets. The way to avoid this is by carrying out a deflation of the sections. This measure consists of raising these sections in the same proportion as inflation. By doing so, when the worker’s salary is raised, he or she pays the same rate of income.
Between 2023 and 2024, the communities that have carried out some type of deflation are Madrid, Navarra and the Basque Country. In other communities what has been done is to reduce the sections or directly reduce the rates to be paid in 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 ones plus those of the PP government, Andalusia, the Balearic Islands, Galicia, Madrid, La Rioja and Valencia.
After years of refusing to reduce taxation, the Catalan ERC Government committed in December to cutting the autonomous section 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’s going to be something imminent. Last year the public accounts were approved by the Government on February 2 and came into force the following month, so this year, 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 reduction would be retroactive to January 1.
Although any movement by 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 she proposed reductions of 1,000 euros in personal income tax for home tenants and 300 euros for taxpayers who have variable rate mortgages. For those who have it at a fixed rate, nothing. Although last year she 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 governments have done.
Desiderio Romero, researcher at Funcas, believes that “the deflation of personal income tax should be automatic and immediate” to compensate for inflation. The impact on the taxpayer 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 taxes, cannot depend on the political color of whoever governs. In Valencia, for example, the reduction in inheritances has been applied since the day after the regional elections, last May. “Inheritance 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 estate taxes, which exist in very few countries, inheritance taxes are practically universal in all communities.
Currently, in Spain and with the latest discounts, in the case of descendants and adoptees under 21 years of age, a symbolic amount is paid in Andalusia, Aragon, Asturias, the Balearic Islands, the Canary Islands, Cantabria, Castilla y León, Extremadura, Galicia, Madrid, Murcia , La Rioja, Valencia and the provincial territories. In the rest (Catalonia, governed by ERC, and Castilla La Mancha, by the PSOE), practically nothing is paid if certain thresholds of the liquidable base are not exceeded. Although everything can change. Last week, Junts demanded that ERC eliminate successions. The race continues.