The Mazón and Vox pact to eliminate assets and successions will open a 600M hole
The government agreement signed by the Popular Party and Vox in the Valencian Community implies a significant tax cut, as well as a strong boost to public spending in some of the main regional items. In terms of taxation, the agreement contemplates the elimination of assets, inheritances and donations and a “drastic reduction” of personal income tax “in all its sections, especially for medium and low wages”. In the case of this tax, there are no further details, so its quantification is impossible, but in the elimination of assets, inheritances and donations, the Valencian Community would lose 615 million euros in income this year, according to the calculations incorporated into the Generalitat budgets for 2023.
Only the elimination of these two figures would imply a fiscal effort greater than the entire increase in spending budgeted for this year, which is 471 million euros.. This measure would mean adding 0.4 percentage points to the region's deficit, that is, only these two measures would exceed the deficit target that the autonomous communities have. And the starting situation is already delicate, because the Tax Authority (AIReF) already calculated that the Valencian Community would have a deficit of 1.5% of GDP this year 2023. That is, five times above the reference level set by the Ministry of Finance..
This tax aid will focus on high incomes, firstly because taxes that affect wealth and donations are subsidized for medium and low incomes, especially in cases of direct kinship. While in the case of personal income tax, high incomes also benefit from reductions in the lower brackets, since they are also taxed at those lower levels.
For example, in the state section, a reduction of half a point in all sections up to 40,000 euros would save just 20 euros for the lowest incomes, around 100 euros for medium incomes and more than 500 euros for the high incomes, according to the calculations of the Registry of Tax Advisors (REAF) of the Council of Economists. This difference is due to the fact that the income that the different benefited sections are able to fully raise takes more advantage of the tax reduction.
A deficit heritage
The expansive fiscal policy proposed by the Popular Party and Vox collides with some very delicate public accounts in the Valencian Community. In 2022, it had a deficit equivalent to 3.1% of its GDP, that is, triple that of the Autonomous Communities as a whole. It also leads the public debt statistics, since at the end of 2022 it had a liability equivalent to 43.7% of its GDP, which is double that of the Autonomous Communities as a whole.. The community with the next highest debt is Catalonia, but in its case it is 33% of GDP, that is, 10 points less.
This starting position leaves the new government with little room to adopt measures that involve a large fiscal stimulus, unless it manages to force a review of the regional financing system. This was the recurring request of the still acting president of the Generalitat, Ximo Puig, and the new Valencian coalition government has taken over. Point 4 of his government agreement includes “demanding from the National Government a new regional financing framework that guarantees fair financing for the Valencian Community”. A requirement that does not guarantee that the region will have more resources.
The government agreement also includes a significant increase in public spending, which is not quantified either.. Among the agreed measures are an increase of up to 30% in health spending, universal and free education for children from zero to three years of age, the creation of aid for companies in the face of the inflationary crisis, investment to increase the housing stock or the improvement of transport infrastructure.
In return, PP and Vox agree to carry out a “correct and efficient management of public money”. The eternal promise of each Government. In this specific case, they will achieve it by “reducing the number of ministers, senior officials and advisors. Unnecessary organisms that do not report in the general good will be suppressed.. A definition so broad that it leaves your discretionary decision where to put the scissors and what charges to maintain.