The Department of the Vice President and Minister of Economy of the Catalan government made a surprise announcement this week: it gave its estimate for the deficit for the close of 2016 as 0.9%, while in 2015, —according to the final budget— it stood at 1.93%, and in 2010 it reached a maximum of 4.48%. Two factors are key to the reduction in the deficit. On one hand, the economy is showing signs of recovery. The Catalan GDP is larger —having grown by 3.5% in 2016 according to figures released by the Statistical Institute of Catalonia (Idescat)— and the deficit has therefore decreased since it is calculated in relation to GDP.
However, the other factor which has provided some relief by improving the Catalan government’s figures is the increase in revenue. Yesterday the government published figures relating to tax revenues for 2016, revealing a total growth of around 10%. Taxation revenue for the Catalan Tax Agency (ATC) grew by nearly 6% —and would have reached almost 8.4% if Spain’s Constitutional Court had not annulled certain taxes— and the largest proportion, originating from Spain’s coffers, has also increased. Under the current financing model, 83% of income comes from advances on certain taxes (basically income tax and VAT, in addition to some special taxes), which increased by 9.7% in 2016, to €19,530.8 million, which represents 101.01% of the estimated budget, which was extended from 2015.
The cost of the Constitutional Court’s decision
Combining taxes it raised itself, together with those transferred from Spain, the Catalan Tax Agency received revenues of €2.880 million (15% of the total) in 2016, 5.9% more than the previous year. If one takes into account the taxes that were annulled by the Constitutional Court —one on nuclear power and another on bank deposits—, the total would be €2.914 million, 8% more than the previous year. The annulment of the tax on nuclear power stations meant a loss of €32.2 million in revenue, and the tax on deposits, almost €2.6 million.
The Catalan government’s tax revenues also include a smaller item, representing 2% of the total, which comes from state taxes which are not subject to the system of funding.
A large part of the increase in the government’s revenues is due to the 12% increase in property transfer tax and stamp duty, up to €1,652 million, closely tied to the performance of the real estate market. Transfers grew by 13% as a result of the growth in property sales, and stamp duty, by 8% due to a recovery in the mortgage market. A tax on empty property, accrued €11,5 million, in spite of the fact that it was suspended following an appeal by the Spanish government, until the Constitutional Court overruled the suspension last September.
There was also a substantial increase in taxation on stays in tourist establishments, which grew by 10%, making a total of €47,6 million. A tax on large retail centres contributed €15,3 million, a 2% increase, while a tax on the provision of media content by the telecommunications providers contributed €18.4 million, a 152% increase. A smaller chunk came from a tax on nitrogen oxide emissions from commercial aviation, €2.9 million, and smaller still, resulting from industrial emissions, of €972,792. Gambling taxes contributed €2.012 million, 0.5% more than in 2015, while the levy on civil defence raised €3,7 million, a 6% increase.
Growth in inheritance tax
With respect to transferred taxes which are managed by the Catalan Tax Agency, there was a 4% decrease in revenues from taxes on inheritance and donations, which remained steady at €464.6 million. There was an 8% drop in inheritance tax, typical of the variability of this kind of tax, while donations grew by 16%.
Nevertheless, revenues from the government’s net worth tax increased by 7%, reaching €495.5 million, due to the general recovery in the economy, which led to a higher income resulting from last year’s taxation campaign. The number of individuals registered for this tax rose by 2% (about 1,400 more), as did the average contribution as a result of the decrease in the reduction in the threshold in conjunction with income tax.
1. How come the government have raised more tax revenue?
Two factors are key to the increase in tax revenues. On one hand, a recovering economy means increases in revenues from many of the taxes. On the other, new taxes have been introduced, which, in general, are new sources of revenue. Nevertheless, in two cases, the taxes levied on nuclear power plants and bank deposits, revenue has declined, since the government has even had to refund the amounts it received following the Constitutional Court’s decision to annul the tax.
2. Which of the government’s taxes bring the most income?
Those which are linked to real estate activity. The recovery of this sector resulted in a 13.7% increase in taxes raised on property transfers, which at €1,245 million means it is the tax managed by the government that provides the highest income. The increase in the number of mortgages was largely responsible for the 8.3% increase in stamp duty. This contributed €398 million. Another source of revenue which grew significantly is the tourist tax, by some 10%, which contributed €47.6 million. Inheritance tax and donations fell by 4.1%, however, with a total of €464 million, while net worth tax grew by 7.31% and raised €495 million.
3. Which taxes increased the most?
The taxes raised by the Catalan government which generated the highest revenues were those covering content, levied on telecommunications providers, which increased by 152% and raised €18.4 million, and a tax on atmospheric emissions for industry, which increased by 708%, while only contributing €972,792.
4. What weight do the government’s taxes have?
Despite the improvement in taxes levied by the Catalan Tax Agency —its own and those which are transferred to it—, they still only provide €14.75% of the government’s total revenue from taxation. All other taxes are managed by Madrid.