The President of the Government, Pedro Sánchez, began his political journey yesterday with a speech in which he not only defended the fiscal pact agreed by the PSC and the ERC. In addition, the head of the Executive assured that all the other autonomies, far from losing with this transfer to the Generalitat, “will see their resources increase”. To do this, Sánchez considered two paths: doubling the already meager resources of the Solidarity Fund – its allocation for the whole of 2023 did not reach 325 million – and another tax increase for higher income taxpayers.
Although Sánchez insisted on the need to punish more those who “drive Lamborghinis” and “have money in the bank to live 100 lives”, the truth is that the so-called Catalan concert will only be financially viable if the government undertakes a tax increase of a much greater scope. It would consist of: increase the state income tax section by 29.5% This would apply to autonomies that would continue under the common financing regime.
This is reflected in the most recent simulation prepared by Fedea on the effects of the agreement that allowed the investiture of Salvador Illa as president of the Generalitat. The organization led by Ángel de la Fuente is working with several scenarios, which range from the current situation to the most extreme case, that in which the fiscal pact would be fully implemented and the Catalan Tax Agency would have 100% transfer of taxes collected on this territory.
Fedea experts, however, consider that the most likely middle ground, once implemented, would consist of a transfer of 60% of total tax revenues to the GeneralitatThis proportion would allow the Catalan autonomous government to have an additional contribution to its finances of 13.2 billion per year, an amount close to the deficit of 22 billion that Catalonia suffers each year, according to the traditional calculations of Catalan nationalism.
Two difficult paths
This injection of resources into the Government would only be sustainable for the current system of distribution between the autonomous communities, either by reducing the resources (by more than 10% on average) that each of the territories receives, or by increasing tax revenues. The first option entails a political cost that is simply unbearable for any government, especially for an executive led by the PSOE, whose regional barons are already publicly protesting against the concessions made to Catalonia.
So all that remains is to act on one of the figures with the greatest collection capacity, such as personal income tax. According to Fedea, all roads go through this direct tax, since a transfer of only 30% of taxes to the Generalitat would already require an increase in the state share of income tax of almost 15%. In the most extreme case, where the Government Tax Agency would manage everything that is collected, The increase that should be applied to personal income tax would be 50%.
Advances of this magnitude cannot in any way be offset by an increase in the tax burden on the so-called rich. Firstly, because there are very few of them. According to the latest tax data from the Treasury, relating to the 2022 financial year, only 230,365 people declare assets of more than 700,000 euros, always leaving aside the value of their main residence.
Wealth tax
This is why a tax figure so unusual in the OECD area for decades, such as the wealth tax, has a very low yield in Spain as a whole. This is a situation that the so-called tax on the rich, the exceptional tax approved by the Treasury due to the inflationary crisis of 2022, has not solved anything. Nor can much more be expected from inheritance and gift taxes, even if the Treasury has achieved its objective of imposing in both cases a minimum rate that cancels out the bonuses that autonomies such as Madrid or Andalusia offer their taxpayers.
Taking literally the metaphor used by the President of the Government, the sales statistics of Lamborghini In Spain, optimism is far from being supported. The Italian brand of elite sports cars only sells about forty units on the Italian market.
As for the increase in the so-called Interterritorial Compensation Fund, not much can be expected from a mechanism whose total annual allocation does not reach 400 million, even when the President keeps his promise to double it. It also remains to be seen whether the main net contributor to this fund, Madrid, is willing to be asked to make more efforts.
