The President of the Community of Madrid, Isabel Díaz Ayuso.Borja Sánchez Trillo (EFE)
The President of the Community of Madrid, Isabel Díaz Ayuso, admitted this Tuesday that the tax reduction policies of successive PP governments are gradually exhausted. “Our margins are becoming more and more complicated,” said the Conservative leader, who still plans to cut the income tax by half a point in all sections in the current legislative session; attract foreign assets with bonuses; and to redistribute the 500 million in revenue from the wealth tax that the regional government took over following a ruling by the Constitutional Court, which confirmed the legality of this tax provided by the State for wealth of more than 3 million euros. Since 2004, conservative governments have refused to pay more than 65 billion euros through tax cuts, although their spokesmen argue that this would not amount to a loss of revenue but rather a tax saving, since the revival of the economy has led to higher revenues for public coffers.
“To what extent is it possible to further reduce taxes?” Díaz Ayuso was asked at an informative breakfast organized by the Association for the Progress of Management (APD) under the title “Digital Economy in the Community of Madrid”. Leverage and success factors for controlling digitalization.
“It is true that we have been continuously reducing taxes for many years and as a result our margins are becoming more and more complicated,” replied Díaz Ayuso. This year we will again benefit from income tax deflation, every time inflation is above 2%. Over the course of the legislative session, we will have to cut the income tax by half a point, and we will have a flood of tax deductions that will focus primarily on home purchases, arbitration, living at home with the elderly, college… In this sense, we will still have some leeway.
The PP defends that its successive tax cuts have resulted in an average saving of 18,000 euros per taxpayer, of which 7,000 are due to Díaz Ayuso's decisions. However, the impact of these measures is neither linear nor comparable across citizens, as it depends on each individual's assets and salaries and generally benefits those who have the most.
This is the case, for example, of the first major tax cut of the Ayuso governments, which was applied to income tax and was worth 300 million euros and which made Madrid the region with the lowest minimum income tax bracket in all of Spain. (8.5%), and in relative terms, savings were concentrated among the lowest incomes (5.6%, compared to 2.8% for the highest). In absolute terms, however, the opposite has occurred. According to calculations by the Ministry of Finance, taxpayers in the lowest tax class up to 12,450 euros will have 4.42 euros more in their account than before… In comparison, taxpayers from 53,407.21 euros save from 507.76 euros and up. Due to the progressive nature of the income tax, the same thing happened with deflation, which was carried out to combat inflation. This corresponds to a saving of 44 euros for low earners and 189 euros for high earners.
The fact that Madrid has so far subsidized wealth tax by 100% and inheritance and gift taxes by 99% has provoked criticism in other regions, especially those governed by the PSOE, who accuse the Community of unfair competition and tax dumping because of its tax offer attracts large fortunes to the capital. It's all based on the controversial Laffer Curve, which was born on a napkin and is the theory that a lower tax burden leads to higher revenue. A proposal so controversial that Díaz Ayuso's board spent 20,000 euros on a study by the Rey Juan Carlos University (URJC) aimed at validating the thesis, since it started from the premise that “moderate taxation”, such as it is promoted by the PP, this explains The region is the economic locomotive of Spain.
What influences the most is what happens next. So you don't miss anything, subscribe.
Subscribe to
However, this strategy, which includes abolishing all regional taxes, cannot be maintained forever. The regional president announced this on Tuesday. The scope is narrowing and after two decades of tax cuts, the end of this policy seems to be approaching, at least in its strongest dimensions.
Subscribe to our daily newsletter about Madrid here.