Regional governments that were meeting their financial responsibilities were not happy at first when the national government set different deficit goals for them, and now some of them are taking it into their own hands to lower taxes since the national government's tax reforms are stalled. Madrid is the sixth regional government to announce a tax cut, and lowered its taxes more than the regions that made the cuts first. Madrid citizens should save a collective 357 million euros on taxes next year.
This is the result of lowering the rate of a tax on pre-owned home and real estate sales (known in Spanish as the Transmisiones Patrimoniales y Actos Jurídicos Documentados), eliminating the céntimo sanitario (a clean-air tax placed on fuel consumption) for shipping service vehicles and cutting the regional personal income taxes by 1.6% across all four tax brackets.
The tax cuts, even if too generous, could placate Madrid citizens after they were subjected to stiff taxation in recent years. Now they will have to pay 4.5% less than Catalonians in regional taxes. Other regions who decided to lower taxes are getting a jump on the national government's 2014 tax reforms. The early tax cuts will surely influence voter opinion as we head into the next elections.
In 2015, Madrid citizens will be able to benefit from the cuts when they do their taxes. At that point, increased economic growth will contribute to increased tax revenues and Spain's ability to meet its deficit objective.
Lowering the Transmisiones tax could give a boost to the real estate market, which appears to have bottomed out. Madrid is taking the lead with its tax reforms. Even though they are modest, these reforms are step in the direction that all tax reforms should travel.
