The Divergence in Personal Income Tax Across Regions
Over the past four years, the gap in personal income tax paid by higher earners versus lower earners has widened significantly. This is not solely a result of central government policy. The differences among communities reflect how regional governments exercise their authority over their territories. The distribution of personal income tax across regions shows regional control of about half the tax base. As a number of regional governments face an almost completely new electoral cycle, these shifts become even more consequential.
Looking to Madrid as a reference point, the Community with a lower personal income tax, it is clear that with an average income of 25,500 euros in 2022, a Catalan taxpayer pays 482 euros more per year than a Madrid taxpayer; the Balearic Islands 404 euros more; Extremadura 394 euros more; and Asturias 375 euros more. In these cases, all taxpayers were already paying more than Madrid in 2018, and later the Catalan taxpayer paid an additional 470 euros, while the Balearic Islands added 250 euros more. Only Murcia reduced its burden during this period, saving 98 euros and resulting in a 191 euro difference versus Madrid. In the 25,000 euro band, Murcia joins Galicia with 178 euros more and the Canary Islands with 191 euros more than Madrid.
When income rises to 45,000 euros, gaps widen further. Those paying more than Madrid in this bracket include Extremadura with 1,018 euros more, Catalonia with 877 euros, and the Balearic Islands with 745 euros. These differences align with areas where the base and rates have remained unchanged or were adjusted upward. Since 2018, only two regions have reduced their citizens’ contributions: Murcia by 291 euros and Galicia by 10 euros. The largest increases, by 313 euros, occur in Asturias, the Balearic Islands, Cantabria, Castilla-La Mancha, and Extremadura.
The discussion considers two example taxpayers, representing business, professional, and real estate income, along with deductions such as contributions to retirement plans. These two cases correspond to averages of the two income brackets where personal income tax is concentrated, using the latest data from the Tax Office. In the income range from 21,000 to 30,000 euros, 14.88% of personal income tax is collected, while in the 30,000 to 60,000 euro range, 37.74% is collected. These figures illustrate how tax collection concentrates at mid-range incomes rather than at the very top or bottom ends.
In broad terms, governments in the last four years have largely kept the national scale intact, with the exception of those earning above 300,000 euros. The regional scale has been used more actively, especially in the last two years. Inflation cannot be ignored in this analysis. When salaries or other incomes rise due to inflation but divisional limits, tax rates, and minimums do not adjust, taxpayers effectively pay more than they did before inflation — a situation described as cold climbing.
Regions that appear to offer more tax relief for households often do so in ways that do not fully reflect real purchasing power. In recent months, autonomies led by different political signatories, including regions formerly governed by the PP such as Madrid and Andalusia, approved changes in personal income tax rates. These could involve adjustments to rate edges, minimum exemptions, or deductions designed to offset inflation. Even with inflation adjustments and a political push toward lower taxation, autonomous regions outside the Common Regime still struggle to close the gap with Madrid, which remains the benchmark for the lowest overall taxation. — Tax Office