Valencian regional president Ximo Puig announced on Tuesday September 27th a series of financial reforms intended to make tax outcomes in the coastal Spanish region more progressive.
The headline grabbing reform is a reduction in income tax rates for those earning under €60,000 gross a year, something that benefits 97.4 percent of Valencian taxpayers (1.34 million workers).
The new income rates will be retroactive and apply to earnings from January 1st 2022, thus reflecting on the 2022 annual income tax declaration carried out next year.
“Incomes of €10,000 will save 21 percent (around €94.5),” Puig explained, and “those of €20,000 will save 7.3 percent (€117). Those of €30,000 will save 2.2 percent, or €67.”
Spain’s Personal Income Tax (IRPF) is a state tax, but half of its collection is controlled by the autonomous communities.
As such, each region can change its income tax brackets, like Puig has on Tuesday, and the reductions he has announced will apply to the 50 percent of IRPF collected by the Valencian regional government – it does not represent a reduction in the overall income tax rate.
Valencianos with incomes over €60,000 will not see any change to their income tax.
During his announcement, Puig gave the example of a young single person under 35 earning €28,000 and paying €8,000 on their mortgage who will pay €530 less in their next tax return.
According to the calculations from the Ministry of Finance, a couple who have an 80-year-old dependent relative, earn €30,000 and file a joint tax return would reduce their net regional tax liability by €162.
It is worth noting that that Generalitat is yet to formalise the reforms in writing, so the specifics (and savings) are not yet 100 percent clear.
The reduction in income tax was announced alongside two other major policies: an increase in tax-exempt minimums, and increases to tax deductions.
The tax-exempt threshold for earnings will be increased by 10 percent for both personal and family incomes, taking it up to €6,105, allowing 33,000 low-income Valencia residents to not pay income tax.
According to Puig, taxpayers in Valencia will save €111 on average this year.
The politics of inflation
Describing the reforms as ‘progressive’ not ‘elitist’ in what many in the Spanish media have interpreted as criticism of the recent People’s Party tax reform across Spain, including in Madrid led by Isabel Díaz Ayuso, and the slashing of a wealth tax in Andalusia, Puig, leader of PSOE in Valencia, claimed his changes will benefit “families with lower income” and improve “the redistribution of wealth” in the region.
“That’s the difference, ladies and gentlemen,” Puig said, “here we keep the wealth tax, a tax for which only 0.5 percent of Valencians are taxed… those who have a wealth of more than half a million euros.”
The reforms also included a tax deduction of €100 for some mortgages, and a promise to build 1,090 new homes on public land in the Valencian Community.
Puig also announced that Valencian public transport (including all metro, tram and bus services) will be free for children and young people under 30 years old from October 9th until the end of the year.
The measure will benefit around 1,553,000 young people across the region and save them €135 each.
Fertility tax deduction
A tax deduction for fertility treatments for Valencian women who cannot be treated in the public health system for reasons of age or low probability of pregnancy was also announced as part of the tax reforms.