The coalition government presented yesterday the package of fiscal measures with which it will tax higher incomes, large estates and companies and will reduce the tax burden on lower income taxpayers. Among the measures announced by the Minister of Finance and Public Function, María Jesús Montero, is a new tax on wealth compatible with the wealth tax to avoid double taxation. There are also changes in Companies that punish large companies and relieve small ones, and changes in personal income tax (IRPF) and VAT. With all the measures, the increase in income will be 3,144 million euros in 2023 and 2024, the years for which the bulk of the plan has been designed.
From the Executive, however, they leave the door open for new figures such as the wealth tax to be extended beyond 2024, even becoming permanent. Specifically, government sources explain that the regulation of this tax will include a “review clause to evaluate its extension annually.” It is a way, they add, to fight against the race to the bottom opened by several regional governments at a time when taxation has achieved a key role in the upcoming regional and municipal elections, in May, and general elections.
All the taxes that already exist and that are modified will go in the project of the General State Budgets (PGE), while the new tax on large fortunes will go through parliamentary processing, since the public accounts do not allow the creation of new tax figures . The punishment in Companies that limits the negative bases for large companies will also go this way.
Minister Montero acknowledged that this presentation usually takes place in parallel to that of the PGE, but for transparency reasons, the Government has wanted to dedicate a special day to the matter to practice “fiscal pedagogy” against “tax populism”.
The leader of the Popular Party, Alberto Núñez Feijóo, called the reform “disappointing and scarce” for not having effects in 2022. The PP’s Deputy Secretary of Economy, Juan Bravo, left the door open to support the plan as long as it goes outside the PGE, although he criticized that some measures, such as the tax on large fortunes, collide with regional powers.
The new tax on wealth is one of the most controversial figures, mainly as a result of the open battle between the communities governed by the PP and those of the PSOE for the bonuses. The rate, in principle temporary, will have to be paid by taxpayers with a net wealth of more than 3 million euros in the taxable base, although the payment may be deducted in full if they are also taxed by Patrimony. Between 3 and 5 million, the rate will be 1.7%; between 5 and 10 million, it will be 2.1%; and from 10 million, 3.5%. In total there are 23,000 potentially affected, with an expected impact of 1,500 million euros, according to Montero.
The figure is designed, as this newspaper advanced, to combat in practice the bonuses of the regions that have eliminated or reduced the weight of the tax, for which the new rate will have a total deduction in the autonomies in which Patrimony continues running.
The new figure, in fact, is inspired by the original, maintaining the exemption for habitual residence at 300,000 euros, as well as the rules for the valuation of assets and the exemptions for the family business. The only difference is that, while Patrimony must be declared from 700,000 euros of liquid base, the new one will start from 3 million. Government sources recognize for this reason that the bulk of these 1,500 million will be obtained in the areas that subsidize the tax. These are Madrid, Andalusia and Galicia, which discount it totally or partially.
There is a paradox, therefore, that these revenues will go to the State, while those obtained by Patrimony go to each autonomous community. The message of the Executive is clear in this sense: the wealth of the great fortunes will be taxed in any case, so the regions will have to decide whether to enter the proceeds through Patrimony or if they lose that money in favor of the Treasury.
From the Government they recognize that litigation with the communities is “more than likely” and they are considering keeping the pulse to combat this downward race that results in less collection. Madrid, which has been subsidizing the tax at 100% since 2011, loses more than 900 million a year due to this reduction.
In personal income tax, the Executive has agreed on several measures aimed at taxing higher incomes more and softening the burden on lower-income taxpayers.
On the one hand, a tax increase on capital income of more than 200,000 euros has been approved, going from 26% to 27%. For capital gains of more than 300,000 euros, meanwhile, the new rate will be 28%. In total, according to Treasury calculations, there will be about 17,800 taxpayers, with an increase of 204 million in income.
Another of the key measures of the fiscal package is an extension of the reductions for income from work in personal income tax, a measure that, according to the Treasury, will benefit half of the workers in Spain, given that the median salary stands at 21,000 euros per year. Thus, those who are below 21,000 euros per year will save a total of 1,881 million in this tax in 2023 and 2024. Until now, the reduction stood at 18,000 euros.
This tax change also implies raising the minimum tax-exempt from 14,000 to 15,000 euros, which guarantees that those who earn the minimum wage (which is now 14,000 euros per year) will continue without paying personal income tax.
As an example, a worker without descendants who earns 18,000 euros per year would save 746 euros in personal income tax and a married worker with two descendants and a salary of 19,000 euros in a joint declaration, 331 euros.
Montero stressed that this measure “benefits the people we have to protect” and not all taxpayers, as is the case with the rate deflation made by communities governed by the PP.
Companies and VAT
In the business section, the Government has lowered the nominal rate in Companies by two percentage points for small companies, going from the current 25% to 23%. The beneficiaries will be some 407,300 small businesses, with a turnover of less than one million euros. On the other hand, the Executive has limited by 50% the possibility of compensating the losses of the subsidiaries of the consolidated groups, a measure that will affect some 3,600 large companies that declare for this tax. The impact will be almost 2.5 billion by 2023 and 2024.
Regarding VAT, the package also includes a drop from 10% to 4% on feminine hygiene products.
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