With regional elections approaching, governments in Spain’s autonomous regions have recently been announcing tax cuts, mostly for the wealthy and some for lower-income households. According to the politicians, the aim is to compensate the rise in prices caused by record inflation. 

Until now, the central government – a coalition of the Socialist Party (PSOE) and Unidas Podemos – has been dismissing the plans, in particular those of the main opposition Popular Party (PP), as populist. But today Finance Minister María Jesús Montero made a series of announcements about her government’s tax plans for the coming years, which are calculated to boost the state’s coffers by €3.14 billion in 2023 and 2024.

The plans will see tax cuts for lower-income households, and a special wealth tax fo high-net-worth individuals. 

Primer Consejo De Ministros Con Periodistas En La Sala Del Complejo De La Moncloa Desde El Estado De Alarma
Minister of Hacienda. Image Cordon Press.

What is the “solidarity tax”? One of the most significant moves announced today by Montero is a tax on people with net assets in excess of €3 million. According to the minister, the levy will bring in as much as €1.5 billion from 23,000 taxpayers in Spain. It will be in place in 2023 and 2024. 

What are the solidarity tax rates? People with net assets of between €3 and €5 million will pay a 1.7% wealth tax, while those who have between €5 and €10 million will be levied a 2.1% tax. For those with over €10 million, the rate will be 3.5%. 

What about the regions that are scrapping wealth tax? PP-led Madrid has long since scrapped a regional wealth tax and other PP regions such as Andalucía are following suit. In effect, the solidarity tax will only be applied to those high-net-worth individuals who are benefitting from the regions that have scrapped the wealth tax. Wealthy taxpayers who already are subject to a regional wealth tax will not have to pay twice. 

What will happen to income tax bands? The Socialist-led government is going to raise the minimum tax-free income from €14,000 a year to €15,000. What’s more, those earning up to €21,000 will also benefit from lower income tax – known in Spain as IRPF – compared to the current limit of €18,000. This, the minister announced in comments reported by Spanish daily El País, will mean savings of €1.9 billion for the four-to-five million taxpayers in these brackets. 

What will this mean in practice? The minister cited one example where a worker with two children and an income of €19,000 would pay €331 less tax, while a pensioner with a yearly income of €16,500 would save €689. 

Why has the upper rate for tax benefits been raised to €21,000? The minister made clear that this figure “was not chosen by chance”, but was in fact the average salary in Spain.

What other benefits were announced today? Montero also stated that benefits for low-income households and the minimum wage would be raised in order to help with the cost-of-living crisis. The upcoming budget will also include a VAT reduction on femenine hygiene products from 10% to 4%. 

What has been announced in Spain’s regions so far? With elections in 2023 in regions such as Murcia, Madrid and Valencia, politicians are looking to please voters. On September 19, the Andalusian regional premier Juan Manuel Moreno announced the scrapping of the wealth tax, duty paid by anyone with assets in excess of €700,000. The PP leader of Murcía, meanwhile, has approved a reduction of the first four income tax rates, up to €60,000 annual income. Madrid is also going to cut IRPF.Why did Valencia’s announcement cause problems? The leader of the Valencian Socialist Party, regional premier Ximo Puig, announced this week an income tax reduction for those who earn up to €60,000. This put the central government in a difficult position, given its criticism of the PP for making similar moves in their regions.

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