Tuesday, February 20

Ximo Puig’s tax cut, in its context

The confusion of the world seems to be accentuated in some moments. Right now, the extreme right has just come to power in Italy, while in Brazil former president Lula da Silva is preparing to evict the most extreme of the rulers. The European Commission advocates intervening in the “fallen from heaven” profits of banks and energy companies and raising taxes on those who have the most and on large companies to deal with inflation and the crisis resulting from the invasion of Ukraine by Putin’s troops, while in the United Kingdom the new Prime Minister, the conservative Liz Truss, does the opposite, applies a tax cut that seems to be taken from the most radical recipes of Margaret Thatcher and sinks the British economy. The dogmas of the neoliberal era no longer work in the midst of the political, economic and social turmoil of a crisis of globalization such as the one we are experiencing.

It would be difficult to understand many of the things that happen without putting them in that context. Also the decision of the president of the Generalitat Valenciana, the socialist Ximo Puig, to lower this year, in the part in which he has powers to do so, the personal income tax on income below 60,000 euros. The announcement has shaken Spanish politics this week, has thrown the opposition off balance and, in the midst of the controversy over the right-wing’s insistence on the tax cut, has upset the Government, which has nevertheless ended up announcing an agreement between the PSOE and United We Can to lower the personal income tax on low salaries (income of less than 21,000 euros) along the same lines, but also to increase the pressure on income of more than 200,000 euros, with a provisional “solidarity” tax on assets that exceed three million euros.

Puig’s tax review aims to “accommodate personal income tax to the effects of inflation, trying to protect the purchasing power of low and medium incomes, at least, in the part of them that is destined to pay that tax”, he explained in this same newspaper the economist José Antonio Pérez, who added: “He is not lowering the tax, he is preventing it from rising.” The president finalized the tax reduction in the general policy debate in the Corts Valencianes, days after his Andalusian counterpart, Juan Manuel Moreno, followed in the footsteps of the Madrid president, Isabel Díaz Ayuso, also from the PP, to abolish the tax on the heritage, between accusations by Puig himself and others, of “fiscal dumping”. And one might think that the initiative of the head of the Valencian Consell was a response, but the truth is that Puig had already announced, without detailing it, the “fiscal review” a few weeks before. “Some lower taxes on the richest, here the majority of society is helped to make ends meet,” he assured to defend his measures, designed progressively, so that 101 of the 150 million euros of savings planned will occur among taxpayers with less than 30,000 euros of annual income.

The truth is that the Botanical Pact, formed by the PSPV-PSOE, Compromís and Unides Podem, met in 2015, when it came to the Government of the Generalitat Valenciana, with the most regressive tax system among the autonomous communities in Spain, the result of two decades of PP governments, and turned it around. Under a camouflage of limited deductions, the governments of the right made the medium and low incomes pay more personal income tax and demanded less contribution from the high incomes and the large fortunes. An expert report on the tax reform explained it as follows: “Contrasting the rates of the Valencian scale and those of the rest of the scales, including the complementary state scale, it is immediately observed that the Valencian is the highest rate of all on the first two sections income, up to 12,450 euros, also equaling the highest for the third income bracket, up to 17,000 euros. On the other hand, it is among the lowest for higher income levels, with the undeniable effect, therefore, that the IRPF is more regressive in the Valencian Community than in the whole of the autonomous territories, by taxing more the lowest levels of income. and to a lesser extent than the other autonomies, the highest levels of wealth”.

Faced with this inherited situation, at the end of 2016 the new left-wing government undertook a tax reform that reversed the situation, placing the rates for income of less than 55,000 euros below the average and raising them above the average for income of more than 60,000 euros, with a growing incidence in those that exceed 90,000, 120,000 and 175,000 euros. He then conseller of the Treasury, the socialist Vicent Soler, explained it this way: “The new autonomous personal income tax rate is a determining fact, since for the first time in the Valencian Community the progressivity of the autonomous personal income tax scale becomes really effective.”

With the argument of tax justice, in 2020, in a tense negotiation of the Budgets for the following year forced by the then Vice President Mónica Oltra, of Compromís, the Botanical Pact further raised taxes on the richest, through a rise that affected to 0.6% of taxpayers with a weight of 14% on what is collected, improved deductions for housing rentals and introduced a tax on electricity companies, among other measures.

In the general policy debate in which Ximo Puig has announced the reduction of taxes for medium and low incomes, the last debate of this type in the legislature given that regional elections will be held in a few months, the three formations of the Valencian left have approved a resolution in which they declare their intention in future reforms to “increase the contribution of the highest incomes”. If that increase had already been introduced in the revision that Puig has announced this year, if the current conseller of Finance, the socialist Arcadi Spain, would have found it necessary to negotiate compensation with his government partners, the initiative, which does not break the fiscal approach of the Botanical Pact (among other things, because it maintains inheritance and wealth taxes ), would have already been on the same path that the Government of Spain has finally embarked on: cut taxes from below and increase above the scale. That probably would have happened if Compromís had not been going through a phase of recomposition after the traumatic resignation of Oltra. And perhaps it would have been more intelligible for the left in a world in which concern is growing about the increase in inequality and in which international organizations that are not inclined to do so advocate redistributed policies. In fact, Podem has ruled in that sense, that of including some tax increase for the highest incomes, in view of the negotiation of the 2023 Budgets. In any case, that of the Valencian Government is not, at all, a reduction tax for the rich.