The Government does not deflate personal income tax and this is how this decision affects our pockets

The Personal Income Tax (IRPF) In Spain it is a progressive tax, which means that the more you earn from earned income, you marginally pay something more, as you access higher rates that increase the tax burden borne.

In our legislation, it is a tribute of fundamental importance to make effective article 31 of the Spanish Constitution, which requires the contribution of all “to the support of public expenditures in accordance with their economic capacity through a fair tax system inspired by the principles of equality and progressiveness that, in no case, will have confiscatory scope”.

Based on the aforementioned progressivity, the personal income tax contains up to six sections, going from a rate of 19% to 47% (new in the last section with the 2021 Budgets). This progressivity can be criticized for the unequal treatment between citizens of the same country according to the amount of their salary, it entails another problem that is perceived in inflationary environments such as the present: if we update our income so as not to lose purchasing power, we will nominally obtain more income, which leads us to higher tax rates in personal income tax.

Inflation and personal income tax: A good deal for the government

According to the INE, the estimated annual inflation of the CPI in the month of December 2021 was 6.7%, which is the highest rate since March 1992, highlighting the rise in the price of electricity. When inflation reaches significant levels, its effects on the tax system should not be ignored.

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The best alternative would be to control inflation, but when this is not possible, such as the current environment might be, it is often desirable adjust the tax system for inflation somehow not to pay a tax surcharge for the rent adjustment.

On the part of the Government, there are no incentives to do so since if the tax bases are increased More is raised! If the wage curve shifts to the right, consequently there will be a higher tax burden without having to touch any taxes.

According to data, the median salary (the one that divides the number of workers into two equal parts, those with a higher salary and those with a lower salary) presented a value of 20,351.02 euros in 2019 and the most frequent we have it at 18,490 euros. Both amounts are very close to 20,200 euros for which you go to a 30% tranche, six points more than its previous section.

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Except for the timid exceptions that we find in the Basque Country councils, with their own tax regime, which would seek to deflate 1.5% – notably below the rise in the CPI -, the Treasury will not deflate personal income tax for this year. If it did, it would most likely have to correct, downward, the forecast of the tax increase of 6.7% in this tribute.

Source: El Blog Salmón by

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