Taxes Of The Autonomies Sink 25% Due To The Pandemic

ByMike Paul

Oct 14, 2020

The communities have assigned a series of taxes, such as the one levied on the patrimony, the one that is applied to donations and inheritances or the one that is paid when the purchase of a home is deed. The autonomies enjoy full regulatory capacity on them. With the outbreak of the pandemic, the contribution of these figures to the regional haciendas has sunk: their collection has plummeted 25% until July, according to the latest data published by the Ministry of Finance. The fall doubles that suffered by state or shared taxes, such as personal income tax, VAT, or companies among others, which fell by 12% until July, according to the Tax Agency.

The causes of these deep falls in regional taxes are not to be found only in the stoppage of activity caused during confinement. It is also due to the fiscal relief measures launched by the autonomies. Most of the territories approved postponements in tax assessments during the worst weeks of the confinement, following in the wake of what the central Administration allowed for those companies or taxpayers most affected by the confinement.

“Most of the communities chose to postpone the inheritance tax, which also has a six-month term to settle. In addition, the tax on property transfers and the tax on documented legal acts [that tax the sale of housing] have fallen because there have been no operations ”, summarizes Agustín Fernández, president of the Registry of Fiscal Advisory Economists (REAF) of the General Council of Economists. The Treasury figures show the dimension of the impact: the collection of the inheritance and donation tax fell by 27% until July and stood at 1,200 million; that provided by the tax on patrimonial transfers and that of documented legal acts plummeted by almost 26% to 3,900 million, while the contribution of taxes on gambling, mainly due to the closure of premises,

“Everything that happens from now on will be conditioned not by confinement, but by the economic situation. Probably from September or December we will have a vision of the future of how things are going to be repositioned, ”Fernández predicts.

The tax on certain means of transport, known as registration tax, also suffered a collapse of 38.53% due to the sharp drop in car sales during the first half of the year. The only tax that has remained afloat has been that levied on heritage, whose collection, however, has been stagnant for more than five years. This tax increased 6.17% until July due to the great pull of Navarra, where it grew 169%. This abrupt growth distorts the statistics. In fact, seven autonomies suffer a sharp decrease in the collection of this tribute.

More resources than ever
The autonomous communities, however, have more resources than ever despite the fall in the collection of ceded taxes. The regional financing system, by which the central government distributes 50% of the expected collection of personal income tax, 50% of VAT and 58% of special taxes, guarantees the flow of resources to the communities to pay for expenses of health, education and social services. And this year it is being more generous for three reasons: firstly, the Government has advanced the pending payments for the liquidation of the financing system (of the year 2018), while last year it delayed these adjustments until the end, causing a row with regional barons. It has also approved an additional injection for 16 communities. Billion to help them manage healthcare costs triggered by COVID-19. Of these, the autonomies had already collected about 6,000 million until July.

And finally, the improvement in the financing system forecasts for this year, which provided for higher income for the communities and which the Government has not corrected despite the change in the cycle. In fact, the Treasury explains that the resources of the financing system subjected to the system of payment on account and subsequent settlement have increased by 16.44% until July.

“These three factors – advancement of the update of payments on account compared to the previous year, payment of the first tranche of the Covid Fund and improvement of the settlement of system resources – explain the significant increase in non-financial income, despite the the decreases in self-managed assigned taxes ”, says the Treasury in its latest report on the regional accounts.

The race to lower the estate tax
The property tax was the only fully assigned tax that had a positive evolution so far this year. This tax that is levied on wealth – real estate, current accounts, vehicles … – is settled in June on the figures of the previous year, and its collection increased by 6% until the seventh month of 2020 in the absence of measures to extend its settlement. Even so, its contribution to the regional treasury has been stagnant for years: if the set of income provided by the ceded taxes advanced by 44% in the communities of common regime between 2013 and 2019, to 13,635 million last year, that corresponding to equity it only grew by 0.3% in the same period.

The history of this tax partly explains its loss of steam. It was eliminated in 2008 and recovered in 2011 , in the midst of the financial crisis, by the Government of José Luis Rodríguez Zapatero. But it no longer collected the same: from the 2,300 million euros in 2008, it went to enter 1,151 million in 2013. Half.

Luis del Amo, technical secretary of the REAF, explains that this fall is due to the modification of the exempt minimum, which with the reintroduction of the tax rose from 100,000 euros to 700,000 ―300,000 for the habitual residence―, and that the stagnation of the value of real estate assets partially justifies the limited progress in recent years. But he adds that the decision of the Community of Madrid in 2011 to reduce the tax to 100% also influences – and a lot – , which has de facto canceled the income contributed by this figure in the region and subtracts 900 million a year from its collection .

For now, Madrid is the only community that applies such a generous bonus – in La Rioja it is 75% -, and for this reason it has become the center of numerous reproaches from other autonomies and from the Minister of Finance, María herself. Jesús Montero, who already in his time as a councilor in Andalusia accused the region of dumpingprosecutor and that before the pandemic he planned to harmonize this tribute and that of inheritance and donations. “It does not make much sense that there are such great differences just by crossing the border between two communities, although it makes sense to exercise regulatory capacity once taxes are paid,” Del Amo considers. And he warns: “Madrid has an advantage because it has been the first to apply the discount, but if a downward competition is installed, the tax disappears: if we all lower, we all have no collection.”

Mike Paul

Mike was one of the founding members of DMR, he was a pivotal figure in the early stages of DMR. Mike has since left the team to pursue his career in software development.

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