The province is reporting almost an 18 percent rise in tax collections in the first quarter of the year, signaling a recovery in economic activity following the worst impacts of the pandemic. A large share of this uptick is driven by inflation, which has sparked questions about a hidden tax hike for taxpayers and what it means for their wallets.
Officials sounded the warning this Wednesday through the Alicante Association of Economists. They outlined the key changes in the Income Campaign, urging early deflation of personal income tax rates to prevent a double erosion of purchasing power. Many taxpayers will feel the squeeze from higher prices and the accompanying higher tax bills.
As the Faculty Dean Francisco Menargues noted, workers who see salary increases—even when those increases lag behind inflation—will face higher taxes. This means their real purchasing power could drop again this year, and some may move into a higher tax bracket. The result is clear: more money in hand will be needed to cover living costs, while the moment of real purchasing power shrinks.
Concerns were echoed by a member of the board of the College of Economists, Antonio Rodriguez, who pointed out the withholding tax practiced by many companies. The monthly take-home pay would reflect the compounding effect of rising prices and higher tax withholdings.
Adaptation measures
Economists argue for lowering or adjusting tax rates to reflect the loss in purchasing power. They call for recalibrating different types of personal income taxes to avoid distributing funds less effectively. For example, if the rate rises from 19 percent to 24 percent and the threshold moves from 12,450 euros, a deflation of 3 percent would necessitate raising this limit to 12,823 euros, ensuring fairer protection against inflation.
Meanwhile, economists in Alicante highlight that the Valencian Community now imposes a maximum income tax rate of 54 percent for incomes above 175,000 euros, a rate that stands 8.5 points higher than Madrid. This places Valencia among the regions with the highest marginal rates for high earners in Spain and among the highest in Europe, underscoring a competitive challenge for talent retention and for attracting teleworkers in high-salary sectors.
The most burdensome income campaign for the region’s wealthy
If the Valencian Community were a country, its wealthy residents would face tax levels comparable to Denmark, where the top rate reaches 55.9 percent. Menargues reminded that the higher tax burden for high earners must be considered alongside broader wealth taxes and exemptions. The minimum exemption threshold in the region has been reduced to 500,000 euros, compared with 700,000 euros generally applied in the province as a whole.
This context helps explain why the Alicante Association of Economists views the tax regime as particularly punitive for high earners in the area. The higher rates may discourage talent attraction and retention and could deter new arrivals in key sectors where high salaries are common.
Minimum Living Income
The College of Economists criticized the requirement for recipients of the Minimum Vital Income to file an income tax return, even though the benefit is tax-exempt. Antonio Rodriguez noted that for many beneficiaries this obligation creates unnecessary costs if they lack the capacity to prepare the declaration without assistance. The requirement appears contradictory to the program’s purpose and poses an additional burden on those with limited resources.
Antonio Perez Rovira, head of the association’s Financial Commission, offered practical guidance for dealing with tax matters. He advised always reviewing data before filing because the Tax Office may not have complete or accurate information. Declarations sometimes omit territorial deductions or various exemptions available to private groups, which can affect the final outcome.
Treasury plans to refund 347 million to Alicante taxpayers in the Revenue Campaign
Perez Rovira emphasized the plan to provide special relief for seniors, including those who have sold their primary residence. They will not pay taxes on benefits used to finance their stay in residences or day centers unless other income surpasses twice the IPREM threshold.
The Tax Office expects to receive about 851,535 declarations in the province this year, with 522,056 of them resulting in refunds, totaling 347 million euros, a slight increase from the previous year. A further 227,028 declarations are anticipated to be processed as positive or negative, contributing to the overall 502 million euro impact of the campaign.