Ángel Collado
Once again overwhelmed by the opposition, this time for tax cuts at the regional level, the Government has improvised its own announcements on fiscal policy. Pedro Sánchez has taken up projects from Podemos that he rejected this summer and clashes with the regional leaders of the PSOE who are trying to ingratiate themselves with the middle classes ahead of next May’s elections.
The president of the government is taking another leftward lurch to raise taxes on “the rich” and only admitting minimal reductions for a minority of lower-income taxpayers.
In Spain’s complex tax system, the autonomous communities have leeway to set the minimum and maximum rates of general income tax (IRPF) that each citizen has to pay. In the end, there is a difference of up to 9 points in the maximum rate. In Catalonia and Valencia it is 50 and 54 per cent of personal income, while in Madrid, at the other extreme, it is 45 per cent.
Faced with rising inflation, the PP’s regional governments, led by Isabel Díaz Ayuso, “deflate” the personal income tax rate in the brackets under their jurisdiction in order to alleviate the tax burden on the entire population. While prices soar and especially punish the middle and lower classes, the state is breaking all records in terms of revenue: 18 per cent more in the first half of the year than in the previous year. This is the principle used by the leaders and rulers of the Partido Popular to propose tax cuts to alleviate the effects of inflation, the so-called poor people’s tax.
Until last week, Pedro Sánchez’s government refused to relax the tax burden in any of its forms and accused the PP of fiscal populism and of endangering “the welfare state”. The president of the Junta de Andalucía, the popular Juan Manuel Moreno, abolished the wealth tax in the region on 20 September and unleashed a chain movement in several autonomous communities of all signs with declining taxes that ended up dragging the central government.
The announcements of tax cuts by the regional executives surrounded the social-communist cabinet with a PSOE leader as the main battering ram. Ximo Puig, president of the regional government of the Valencian Community, in the face of Sánchez’s arguments, signed up to the fashion of “deflating” the personal income tax rate to lower its rates for taxpayers with incomes of less than 60,000 euros a year, which includes the middle classes.
The Ministry of Finance, also overwhelmed by similar announcements in the rest of the autonomous regions, had to improvise last Friday some announcements on the matter. And it showed the differences in interests and sociological vision of the country between Sánchez and the regional presidents of the PSOE, such as Puig: the central government only admits reductions in personal income tax for the lowest incomes, below 21,000 euros, and excludes the middle classes from any tax relief.
In addition to raising the rate for the richest, 0.1 per cent of taxpayers according to Finance Minister, María Jesús Montero, the government has created a new wealth tax for the whole of Spain. Three months ago it had been rejected in Congress when it was proposed by its far-left partners. The PSOE’s parliamentary spokeswoman then argued against Podemos’ demand that it was ineffective and encroached on the competences of the autonomous communities, which have had it ceded by law since 2009.
With this turn of events, Sánchez contained the communist sector of the cabinet and opened another front of conflict with the regional governments of the PP, such as those of Díaz Ayuso and Juan Manuel Moreno. Both announced appeals to the Constitutional Court for the invasion of competences recognised by the socialists just three months ago.
In the political background of the fiscal chaos exacerbated by Sánchez’s stunt are the electoral interests at stake for the two major parties ahead of the upcoming elections: regional elections next May and general elections at the end of the year. The PP wants to run with the promise of lower taxes fulfilled and some PSOE leaders, with Puig at the head, do not want to be left behind in the search for the favour of the middle classes.
Sánchez prefers to guarantee the support of his far-left partners with measures against “the rich” with an eye on the processing of the General State Budget, which begins to be processed this month and will guarantee his continuity in power until December next year. At the same time, he discards any nod to the middle classes and cultivates his more left-wing image for the general elections.
