Half of the communities have approved tax cuts in personal income tax and most have established deductions or bonuses in different taxes, in an exercise of their fiscal autonomy that, according to the Government, conditions their capacity to provide citizens with essential services such as health or education.
At the same time, and while the financing system has accumulated more than 10 years without being renewed, the communities maintain their demand for a greater contribution from the State to be able to meet their responsibilities, so the Government, through the Minister of Economy, Carlos Cuerpo, has warned them that "you can't have your cake and eat it too."
This apparent contradiction will be one of the issues that will hover over the Conference of Presidents next Friday, not only in the debate on the reform of regional financing but also in issues such as housing or the lack of healthcare personnel, since these are responsibilities that largely depend on regional budgets.
Generalized Rebates
When he made that statement, Carlos Cuerpo referred directly to the Andalusian Regional Government, which he asked for "fiscal coherence," since expenses cannot be separated from income, that is, on the one hand lowering taxes and on the other saying that essential services cannot be paid for due to the underfunding of the State.
The PP's regional governments do not agree with this, arguing, as the finance ministers of Madrid, Andalusia, Extremadura, La Rioja, and Cantabria recently stated at a working conference, that "lowering taxes increases revenue," as Madrid's Rocío Albert said.
According to the 2024 Panorama of Regional and Local Taxation of the General Council of Economists of Spain, more than half of the autonomous communities have approved reductions in personal income tax in the last two years to counteract the effect of inflation, and most have established deductions or bonuses in several of their taxes.
The study indicates that the Balearic Islands, Cantabria, La Rioja, Navarra, and the Basque Country have reduced their personal income tax rates this year 2024, and Aragon, Extremadura, Madrid, and Navarra have done so with effects from 2023.
In the wealth tax, Andalusia and Madrid give their citizens the option to decide whether they want to pay the fee in their communities or to the State through the Tax on Large Fortunes, and Galicia has established that the amount of its bonus -50% - will be reduced by the amount to be paid in that new state tax.
In addition, Aragon has increased its minimum exempt amount from 400,000 to 700,000 euros; Extremadura has introduced a 100% bonus; the Balearic Islands have raised the minimum exempt amount from 700,000 euros to three million, and Cantabria has introduced a 100% bonus for assets below three million.
In the inheritance tax, they have established various bonuses depending on the family relationship in the Balearic Islands, the Canary Islands, the Valencian Community, Aragon, Extremadura, and La Rioja, and in the donation tax, the Canary Islands, the Valencian Community, and Aragon have done so, and Asturias and La Rioja have approved other measures.
More than 5.7 billion less to spend
The VI Report on Inequality in Spain 2024 by the Alternativas Foundation estimates that in 2022 the communities as a whole collected 5,719 million euros less than they could have obtained by applying state regulations.
This represents 129 euros per inhabitant, 0.5% of GDP, and 4.8% of their tax revenues, according to this study, which notes a large regional variation in this regard, with 10 regions with a negative balance and five with a positive balance.
Madrid is the community that, by a large difference, has reduced its taxes the most, failing to collect 928 euros per inhabitant, 2.39% of its GDP, or 26.1% of its tax revenues, followed by the case of the Balearic Islands, mainly due to real estate transactions taxed by the ITP at rates ranging from 8 to 13%.
Two years of the fiscal battle
It has been two years now since the Andalusian president, the popular Juanma Moreno, unleashed a fiscal battle with his announcement of abolishing the Wealth Tax in his community, a political battle that resulted in more regional tax cuts and the creation of a new tax on large fortunes.
Moreno took advantage of an informative breakfast in Madrid to announce a 100% bonus on the Wealth Tax with the intention of preventing the flight of taxpayers who pay the most and achieving the return of those who had already left and the arrival of new ones who would end up increasing total revenue through personal income tax and other taxes, in line with the PP's defense that "lowering taxes increases revenue."
The war had begun, and one of the first to counterattack was the then Minister of Inclusion and current Governor of the Bank of Spain, José Luis Escrivá, who in a "personal" capacity was in favor of greater fiscal centralization to avoid the "nonsense" of tax competition between communities, which Madrid had initiated years before and which, indeed, would spread in the following weeks.
The President of the Government, Pedro Sánchez, also urged to avoid a downward fiscal competition between autonomous communities because, when the periphery competes in this area with Madrid, he warned, the periphery always loses.
After the communities, from the PP and the PSOE, initiated a succession of announcements of tax cuts and deductions, the culmination was the Government's proposal of a "solidarity tax" to collect 1,500 million euros from large fortunes.
