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2020 budget to raise taxes for higher earners and drop them on lowest incomes

Government gets support of left-wing party for income section, and seeks to gain backing for spending part

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16 December 2019 11:47 AM

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ACN | Barcelona

The 2020 Catalan budget will drop income tax for people on the lowest wages, vice president Pere Aragonès said on Monday morning, while taxes will go up for higher earners. 

The inheritance and wealth taxes will also be modified, with a new tax on power companies also to be introduced. 

The cabinet's second-in-command announced an agreement between the government and the left-wing Catalunya en Comú–Podem opposition party, but only for the part of the spending plans relating to income. 

Both sides will continue to hold talks in the coming days and weeks, in order to try to find consensus on the budget's section on spending. 

The Catalan parliament has been unable to pass a budget since 2017, and so the administration has been working with an extension of the previous bill for the past two years.

Content of the deal

Income tax

In Spain, income tax is partly managed by the central government, and partly by the regional authorities – so in Catalonia, both administrations establish a percentage to pay, with the taxpayer paying the sum of both. It is fully collected by Spain's tax office.

The recent deal establishes that those earning less than 12,450 euros a year will see almost half of their salary (6,105 euros, 555 euros more than before) exempt from the income tax managed by Catalonia – this tax is regulated partially by the Catalan administration, and partially by Spain's executive.

Most of the other salary thresholds maintain their share of income tax, but the higher earners will have to pay more: those earning between 90,000 and 120,000 a year will pay 23.5% of the Catalan part of the tax – two points more –, while those between 120,001 and 175,000 will be at 24.5%.

The Spanish part of the income tax goes between 9.5% for the lowest salaries to 22.5% to the highest ones.

According to the government, these measures will contribute to an extra 543 million euros a year of income.

Inheritance tax

In Catalonia inheritances are subject to taxes, with complex regulations varying the percentage to pay depending on the amount inherited, the type of good (habitual residence, other homes, money, etc.) and the grade of relation between the deceased person and the heir.

In the past few years, the tax has been subject to discounts when applied to spouses and especially when the amount inherited did not reach 500,000 euros (with discounts of up to 95%).

Now the discounts for this tax will be lowered progressively as the amount inherited increases – except when it is an inheritance from a spouse.

Thus for those inheriting up to 100,000 euros, the discount will be 60%, and those getting more than 3 million euros will have no right to discounts in this tax. 

New 'green' tax

A new tax will be created if the 2020 budget is passed in Parliament, and will affect those power companies producing, distributing and storing energy – but those operating with renewable energies will be exempt.

Vice President Aragonès said that this aims to target "oligopolies" and also intends to contribute to fight the climate emergency.

Other amendments to taxes include those affecting owners of empty flats, aiming to reduce the stock of uninhabited homes, and canned sugary drinks to reduce the consumption of such soft drinks.

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  • Catalunya en Comú - Podem representatives (left) sign a budget deal with government officials (right) in Barcelona on December 15, 2019 (by Bernat Vilaró)

  • Catalunya en Comú - Podem representatives (left) sign a budget deal with government officials (right) in Barcelona on December 15, 2019 (by Bernat Vilaró)

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