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Thursday, 20 July 2017 15:29

There is agreement between Citizens and Treasury for a lower income tax on low incomes

The agreement will begin in 2018 and includes a reduction in labor income, a drop in the tax rate and an increase in deductions.

Citizen support

From Citizens, the party that has agreed this agreement with the Minister of Finance, it is pointed out that the mechanisms that will reduce the pressure of the IRPF have yet to be analyzed. If the economic growth of the last two or three years is consolidated, and revenue increases, the reduction of the IRPF, especially for the most underprivileged income, can be important and have continuity for the coming years.

The position of the Ministry

Although the current Minister of Finance, Cristóbal Montoro, was not originally in favor of lowering this tax, finally the Government has agreed. The final tranches to which this decrease will affect will not yet be determined, although it is pointed out that this reduction of rates would only be for the lowest incomes and would be accompanied by an increase in some deductions from the quota.

With this agreement, the People's Party government ensures the support of the orange formation led by Albert Rivera, to achieve the fixed deficit and public debt targets for 2018-2020, as well as the non-financial spending limit for 2018.

The Minister Montoro

The Minister of Finance has advanced that this reduction of the IRPF for 2018 will be a first phase, in the process of reduction for low income that will be carried out in the IRPF. All this is part of a plan to define a progressive reduction of taxation, which contributes to an increase in solidarity and serves as a stimulus for economic growth.

Some details of the reduction

This measure, which affects an amount close to 2,000 million euros, aims at less pressure on lower incomes, with more vulnerability.

Everything seems to indicate that the incomes that will benefit from these measures, are those that do not reach the 14,000 euros. The next tranche, ie up to a limit of 18,000 euros of income, will also have a reduction is a tax contribution.

With regard to other more vulnerable groups, other deductions will also be implemented for specific cases, such as dependency and maternity.

Why is it not possible to reduce the tax in general, for all taxpayers? The reason put on the table is that this reduction of the IRPF would prevent the reduction of the deficit to the percentage set for the year 2018 by the European Commission, around 2.02%.

It should be remembered that this gap in the budget was around 4.3% of GDP in the last year 2016, and for this year 2017 is expected to decline to 3.1%.

Although the formula set for the reduction of the Income Tax will start to be applied to the lowest and most vulnerable incomes, little by little it will spread to other groups. The adjustment of the deficit in relation to the different Autonomous Communities, during the years 2018 and 2019, will derive from the reduction of the budgetary margin of the Social Security.

The reduction of the income tax to low income will already be included in the budgets of 2018.

Writings SF Lawyers