Council of Ministers
Government announces average Personal Income Tax reduction of 12.5%
Moncloa Palace, Madrid, Friday 20 June 2014
The Council of Ministers analysed a report on the Draft Tax Reform Bill, with the aim of designing clearer and fairer taxes. The reform will result in a GDP increase of 0.55% in the period 2015-2016. On Monday, the text will be published on the webpage of the Ministry of the Treasury and Public Administration Services, which will be submitted to the regional governments and to the different social stakeholders at which time a period of public consultation will be initiated. Following this process, the government will approve its submission to Parliament with a view to it entering into force in January 2015. The Vice-President of the Government, Soraya Sáenz de Santamaría, highlighted that this is a structural reform which seeks to reduce taxes for all on a general basis: for workers, companies and families. "The reforms adopted over the last two and a half years have enabled us to tackle the path to recovery. Now is the time for consolidation". Along the same lines, the Minister for the Treasury and the Public Administration Services, Cristóbal Montoro, pointed out that "the time has come to reduce taxation for everyone and the Spanish people will now be compensated for the efforts they have had to make". The two ministers underlined that the reform not only seeks to compensate the sacrifices made by the people, but also to strengthen economic growth, stimulate savings and investment through a modern tax system that fosters job creation. "We will reduce tax on employment significantly and we will reduce the so-called 'fiscal gap', which is too wide in Spain", said Cristóbal Montoro. The Minister for the Treasury pointed out that the reform seeks to foster entrepreneurialism and enhance the Spanish economy's ability to compete with the rest of the world. "We are committed to enhancing - through higher fiscal savings - the facilities for companies in Spain to become larger, more effective and more competitive". Both Soraya Sáenz de Santamaría and Cristóbal Montoro highlighted that the underlying principle of this reform is the creation of a fairer tax system, with a particular focus on families and the disabled.
Average reduction of 12.5% in IRPF
The average Personal Income Tax reduction will be 12.5% for all taxpayers. 72% of taxpayers, with income lower than 24,000 euros, will have an average reduction of 23.5%. The Vice-President of the Government announced that "in 2015, 20 million taxpayers will have higher disposable monthly income because this reduction will be seen from the very first month of withholdings in January 2015". The Minister for the Treasury and the Public Administration Services added that "for those taxpayers with income of less than 18,000 euros per annum, the total reduction on their current situation may be as high as 31%". Cristóbal Montoro confirmed that next year the number of IRPF brackets will be reduced from the current 7 to 5. The tax rate of the lowest bracket will stand at 20% next year, dropping to 19% in 2016. The tax rate of the highest bracket will stand at 47% in 2015, dropping to 45% in 2016. He also pointed out that those citizens that have total income from employment of less than 12,000 euros will not pay IRPF.
More social benefits
The minister announced that the so-called 'negative taxes' will be extended, which include aid directly paid out from the Treasury earmarked for certain groups, such as large families and families with dependent children and disabled members. A new feature indicated by the minister is that while aid for working mothers is maintained, new social protection vehicles are to be created. In each case, 1,200 euros may be received per annum in advance at a rate of 100 euros per month. These 'negative taxes' are to be accumulative.