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Treasury Will Agree Regional Taxes Next Year

The coalition government has committed to ERC to harmonize regional taxes so that Madrid pays more in exchange for the support of the independentistas to the Budgets.

In reality, the Minister of Finance, María Jesús Montero, had already planned to harmonize regional taxes for some time. It is not something improvised: already in 2017, the experts for the reform of autonomy financing gathered by Cristóbal Montoro (PP) proposed a review of the wealth tax, inheritance and donations, and patrimonial transfers to set minimum rates that avoid distortions in the effectiveness and tax efficiency.

María Jesús Montero is preparing a tax reform that will include a harmonization of regional taxes: inheritance, donations, property transfer tax and property tax.

The minister claims that the communities cannot lower them beyond a minimum, or raise them above a ceiling.

This scheme will force the Community of Madrid, among others, to raise most of its taxes. Although ERC announced on Tuesday that this is one of the agreements in exchange for its support for the 2021 Budgets, the truth is that the Treasury has been with this plan for some time, which it plans to approve next year.

Despite the strikingness of the agreement, Montero did not promise anything new or revolutionary to Gabriel Rufián. It is something that has been accepted by academics for years.

The committee of experts for the reform of autonomous financing created by Cristóbal Montoro, former Minister of Finance (PP), in 2016 defends the harmonization of regional taxes.

A score of academics and specialists spent a year studying and debating all the details of the regional accounts. In their final report with the proposals to reform the financing system, they stated: “It would be desirable to harmonize the taxable and payable bases of the taxes assigned in whole or in part, restricting the autonomous regulatory capacity to the tax scales and possible deductions or bonuses from the quota ,

Cristóbal Montoro also defended that regional taxation had to be harmonized to reduce differences between territories, although his plans did not include toughening the property tax.

The Minister of Finance explained in a recent interview with EL PAÍS that the reform of regional financing and the consequent fiscal harmonization “has not been done now due to the fact that the Budget law does not allow the change of an organic law.”

But he insisted that he wants to launch it in 2021. The Treasury wants to link the reform of regional taxes to that of the financing system, which has been bogged down since 2014.

The ministry has in a drawer all the technical work to address this issue, but the Political difficulty in opening this melon, one of the thorniest on the Spanish political scene, has delayed the reform. The minister assures that she wants to launch it next year

The dust cloud over Madrid’s tax competition arises with some frequency. Above all, when a political official accuses the community governed by the PP of tax dumping (downward tax competition). And this happened again this Tuesday.

ERC’s spokesperson in Congress, Gabriel Rufián, announced that he had reached an agreement with the Government to support the General State Budgets for 2021. The price charged for his vote includes the creation of a bilateral committee to study a “total, fair and progressive tax reform”.

Rufián specified that he wants the wealth tax to be more progressive for large fortunes and “end de facto tax dumping and the tax haven set up by the right in the Community of Madrid.”

The independence leader has long been claiming the same wealth tax for all of Spain, to avoid differences between territories. That is precisely what the ERC spokesperson did in Congress last Tuesday.

His speech is similar to the one wielded by other communities governed by the PSOE, with Valencia at the head, which accuse Madrid of unfair competition because it has lower taxes than the rest. These autonomies affirm that Madrid can afford this low taxation because it concentrates more wealth. A situation that they believe is unfair.

A glance at the community tax map reveals that behind these there is a certain ideology. The autonomies where the socialist party has ruled for the longest time tend to have the highest taxes, because left-wing governments consider strengthening the welfare state a priority.

On the contrary, the autonomies where the popular have governed the longestthey usually have the lowest taxes. In the PP they believe that low taxation helps stimulate the economy and growth.

That is why Madrid makes the flag of having the lowest taxes. But the debate is whether this community benefits in addition to hosting the headquarters of large companies and being the heart of the state public administration, which gives it more wealth and, above all, more room to lower taxes. Something that other autonomies cannot do.

Experts in regional finance such as Ángel de la Fuente, director of Fedea, defend that Madrid does not benefit from the capital effect. Remember that the current financing system has mechanisms to correct these possible income imbalances between territories.

Francisco Pérez, director of the IVIE, defends the opposite. “There is undoubtedly a capital effect.”

And he uses a study published a couple of months ago that reveals that Madrid has benefited from being the seat of the State Administration, which has allowed it to attract the headquarters of large companies and accumulate more qualified taxpayers and higher incomes. In this context, he explains, the capital has been able to develop a fiscal policy.

“I have also been a regional councilor and I understand that feeling,” explained the Minister of Finance, María Jesús Montero, in a recent interview with this newspaper. Better-financed communities may have more ability to lower taxes than less-financed communities.

It is a question that of course must be corrected, because fiscal capacity cannot be exercised if the model gives you a different capacity than the one it contributes to the neighboring community, “the minister added, explaining:” That situation it also occurs because those territories with less income for historical reasons, because they have fewer tax offices of companies, or for many other reasons, are forced to raise the rate more to collect the same as those that have more income ”.

Montero defended that the tax system has to be progressive and equitable between territories. “I have always been of the opinion that taxes are paid by citizens, not territories, and a fair tax system is a tax system that makes citizens with more capacity have more contributions and citizens with less capacity have less”.

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