45% of all wealth tax collection for the 2014-2019 period was paid by taxpayers residing in Catalonia. The finance and accounting professor at UPF Barcelona School of Management and tax expert, Carmen Jover, comments on these figures and analyzes the meaning of a tax that "disincentivizes the creation of wealth".
Catalonia pays 45% of the wealth tax of the entire Spanish State, what is your analysis?
This disproportionate contribution is explained by the fact that the wealth tax depends on the wealth of people and obviously the majority of this wealth is concentrated in Catalonia and Madrid. And since Madrid contributes zero, it is evident that Catalonia, of all the collection, contributes the vast majority. It has to be said that this is a state tax ceded to the autonomous communities, so this collection stays in Catalonia. If Madrid were to pay taxes, this percentage would drop a lot, but since they have it subsidized, they contribute zero. After Catalonia, the autonomous comunity that collects the most is the Basque Country, València, Andalusia, Galicia and the Balearic Islands. The Principat and País Valencià are the most diligent in controlling changes of fictitious fiscal domicile.
The rates imposed by the autonomous communities are very different.
The State sets some minimum rates and then each community modifies it if it can. The central government modified it in 2021 and ranges between 0.2% and 3.5% maximum from 10,695,996 euros. As Catalonia already had it modified for a long time, we are lucky that we are below the threshold of the State. Now we have from 0.21% to 2.75% and in fact we are below other communities.
We hope that in 2022 there will be a reform, especially of regional taxation, and a minimum rate is planned to avoid this tax competition.
But if it is discounted, it is like suppressing it.
Madrid cannot abolish the tax, because it is state owned. There they leave the types that the State says and apply 100% bonuses. And this can cause movements of people, fiscal changes, who seek to save themselves from paying.
Can the State make it impossible for the communities to discount it?
This is what will be proposed, surely, in the tax reform that we hope will come out. At the end of the month the committee of experts will publish a report on the matter, but the fact that it is proposed in this report does not mean that the Ministry of Finance will follow it. We hope that in 2022 there will be a reform, especially of regional taxation, and a minimum rate is planned to avoid this tax competition.
And do you think it would be beneficial if it existed?
I think that a mandatory minimum and maximum rate should be set, because this is an old tax that does not exist in any country of the European Union and that it is evident that it discourages the creation of wealth and motivates changes of fiscal domicile. I think that if you want it to continue, because it is a source of income, you have to set some minimums and maximums.
And it causes unfair competition between autonomous communities.
It is very different to pay 275,000 euros each year to zero euros each year.
Does it not exist in other European countries?
It existed but has disappeared in all the countries of the European Union, the last to remove it was France. In European countries it exists in Norway and Switzerland, precisely two very rich countries. The wealth tax has disappeared from all EU countries except Spain.
This is an old tax that does not exist in any country of the European Union and it is evident that it discourages the creation of wealth and motivates changes of tax domicile.
How come it disappeared?
The wealth tax has an important census management, because if I know the wealth, I know the income. But the tax administration now has many possibilities to know the assets of taxpayers -cadastre, bank information, etc.- so it has lost its meaning. Thanks to technological developments and tax control, this tax has become outdated. But it is also a tax that discourages the creation of wealth.
If this harmonization is imposed, could it significantly affect collection for the communities?
If it is harmonized, the law on assignment of taxes to the autonomous communities will have to be changed, because they have this tax. You have to touch the financing law of the autonomous communities, too. You cannot remove the collection of a tax without compensating it in some way, the communities have this money. For Catalonia it is a very important amount, about 500,000 million euros.