The privileges that allow Madrid to lower taxes

The concentration of large companies and the public sector allows the capital to make tax cuts

The president of Madrid, Isabel Díaz Ayuso, assures that Madrid is not a tax haven but that Catalonia has become a "tax hell" for its citizens and companies. The figures speak for themselves: Madrid has been approving tax reductions for almost two decades, such as the total elimination of the wealth tax, which especially benefits medium and high incomes. According to a study by the Valencian Institute of Economic Research (IVIE), 7% of Madrid's taxpayers (who earn over €60,000 a year) benefit from 42% of these reductions. Thus, Madrid attracts high income taxpayers from other autonomous communities, who go on to pay their taxes there to benefit from these policies. That is why tax experts say that Madrid has become a kind of tax haven for high income earners, not for the rest of citizens.

But the question is: why can Madrid carry out these tax policies and not the rest of regions, not even those governed by the PP? It's very easy: Madrid benefits from what is known as the "capital effect", that is to say, resources that it receives just by being the capital of the State, and which allow it to have a high tax income with lower rates. The figures are scandalous: Madrid collects 46% of all taxes in the state (according to data from 2018) when its economic weight is 19.2%. On the other hand, Catalonia, which has a 19% weight in the Spanish GDP, collects 20%. It is this disproportion between collection and economic activity that turns Madrid into a black hole that sucks up resources, both economic and human, from the rest of the Spanish territory, and turns the rest of the Peninsula into a desert to the greater glory of its metropolis.

Madrid, moreover, unashamedly promotes the transfer of business headquarters to its territory by offering, among other things, better tax conditions for top executives. And this policy is paying off. A study by University of Zaragoza professors Julio López Laborda and Fernando Rodrigo published by Fedea indicates that, from 2006 to 2012, 458 high-income taxpayers moved from Catalonia to Madrid, while the reverse journey was made by only 71 people. Other territories, however, have suffered even more from this flight of wealth: 748 high-income taxpayers left from Andalusia, and 299 from Castilla-La Mancha. And this trickle has continued, and may even have become more pronounced in recent years.

Now it turns out that the Spanish right-wing wants to sell what is an unfair competition based on a privileged position as a defence of devolved powers. In fact, a study commissioned by Mariano Rajoy's own government warned that measures had to be taken to avoid this fiscal dumping. And it is logical that if we share the same economic space, be it Spanish or European, there should be a certain fiscal harmonisation to prevent some from taking advantage of the rest. Whether they be Madrid or Luxembourg.

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