The maximum marginal rate of Personal Income Tax (IRPF) now exceeds 50% in seven autonomous communities. The Valencian Community (54%), Asturias (50%), Cantabria (50%), the Canary Islands (50.5%), Catalonia (50%), La Rioja (51.5%) and Navarra (52%) impose income add a tax that exceeds half of the income. The Valencian Community is the Spanish region with the highest maximum marginal rate, which reaches 54%. On the contrary, the Community of Madrid establishes the lowest autonomous section in Spain and leads its taxpayers to pay the maximum rate, also lower, of 45%, nine points below the Valencian Community.
This is shown by the data from the Panorama of Regional and Foral Taxation 2022 study, prepared by the General Council of Economists (CGE). The report highlights that, in terms of personal income tax in the last year, Andalusia, Galicia, Madrid and the Region of Murcia lowered their rates, while the provincial territories of the Basque Country and Navarra deflated them to 1.5% and 2%, respectively. Catalonia lowers the lower sections of the rate and slightly increases the means.
In this way, the IRPF rates of the autonomies deviate from the state rate (9.5% to 24.5%). Thus, of the 15 autonomous communities of the common regime, six have the same minimum rate as the state rate (9.5%), four have set it below and for the remaining five it is higher. As regards the maximum margin, in six Communities it is lower than the state level and in nine it is higher. In personal income tax, the communities have regulated many deductions, generally with little collection cost because they are usually established for taxpayers with very specific circumstances and, normally, with low incomes.
According to the latest reports from the OECD and PwC’s Worldwide Tax Summaries, in Europe, only nine countries exceed the 50% barrier in the maximum marginal rate of personal income tax. Denmark (55.9%), France (55.4%), Austria (55%) and Spain (54%) have the highest personal income tax rates among European OECD countries in 2021. For their part, Hungary (15%), Estonia (20%) and the Czech Republic (23%) maintain the lowest maximum personal income rates. On the other hand, the progressivity in the Spanish income tax is one of the highest in the OECD, with maximum rates of personal income tax that, depending on the autonomous community, reach 54%. The Spanish rate is thus well above the European Union average, which does not reach 40%.
In addition, in Spain the maximum rates are applied from a relative level of income much lower than that of the environment. Thus, while in the average of the countries of the European Union belonging to the OECD the maximum marginal rate applies from four times the average salary, in Spain it does so from only two and a half times the average salary.
This, together with social contributions, raises the Spanish tax wedge also above the OECD average. The tax wedge -the sum of Social Security contributions and Personal Income Tax (IRPF)- in the OECD accounted for 34.6% compared to 39.3% in Spain, which positions our country in the group than countries that pay the most. Some countries that present lower labor taxes than Spain are Denmark -with a tax wedge of 35.2%- or Norway (35.8%).
Penalty for high rents
The Indicator of regulatory tax pressure on wealth taxation, prepared by the Institute of Economic Studies (IEE) based on data from the American Tax Foundation, shows that the taxation of savings in Spain is 40.9% worse than the average of the European Union and 39% less competitive than the OECD average.
Taxation of savings in Spain is 40.9% worse than the European Union average
The OECD points out that the tax treatment of savings in Spain is one of the most harmful among advanced countries, so that, once the Wealth Tax is included, the marginal rates on savings exceed 100% in the case of Spain, since, unlike the tax regime prior to 1991 and the one in force in France at the time, in Spain the so-called tax shield is not absolute, but relative, to the extent that a minimum taxation of 20 %.
In addition, there is no country in the EU-27 that has a Wealth Tax like that of Spain. In Europe, it is only present in Norway and Switzerland with rates significantly lower than in Spain, and in recent years Austria and Denmark (1995), Germany (1997), Finland (2006), Luxembourg (2006) have suppressed it. , Sweden (2007) and France (2018).
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