Does lowering the wealth tax push residents to move across autonomous communities?
The regional president of Andalusia proposed dropping the wealth tax rate to zero and urged Catalan business leaders to consider moving their domiciles to Andalusian provinces to avoid taxes imposed by the Catalan government. Andalusian President Juanma Moreno aims to attract 7,200 new taxpayers. The initiative would offset the 93.34 million euros Andalusia forgoes by eliminating the wealth tax in practice. The underlying issue is whether tax competition between autonomous communities can influence where people choose to live and work.
Does tax relief trigger taxpayer relocation between regions?
Experts acknowledge that lowering regional taxes can motivate some residents to relocate, but it is impossible to quantify the exact number who move strictly for tax reasons. Ruben Gimeno, head of the Tax Advisors Registry Studies Service at the General Council of Economists, explains that the wealth tax is filed where the income tax base is earned and where people spend the most days in the tax year. In other words, tax residency is tied to where most time is spent and where earnings accrue. Auditing for fake residency changes remains challenging for both state and regional authorities. In Catalonia, authorities conducted 45 cases of suspected fictitious residency changes in 2021, up 15 percent from the year before, yielding 28.7 million euros in wealth and inheritance taxes and donations, marking a sharp rise from prior years.
Can Andalusia compete with Madrid to draw taxpayers from other regions?
That is a tough question. Madrid not only slashed the wealth tax to zero but also offers the lowest rates for income and inheritance taxes. Being the capital provides extra pull for investment, workers, and professionals. For instance, Madrid’s transport links to major cities like Barcelona are difficult to match. A study from IvieLAB, a Public Policy Analysis Laboratory tied to a regional policy institute, shows that Madrid gained over 100,000 taxpayers from other communities between 2009 and 2018, a period characterized by strong tax reductions in the region.
Would reducing the tax lead to higher revenue?
The answer is not clear. Madrid has seen tax collections rise in recent years, but the Finance Ministry contends that revenue would have been higher if taxes had not been lowered. Overall, the tax system allows autonomous communities to collect 1,203 million, while Madrid sees zero collection in practice.
How have taxpayer numbers evolved across the autonomous communities recently?
Between 2012 and 2020, the number of Wealth Tax applicants rose by 26 percent, reaching 218,991 filers and 45,486 more than in 2012. Madrid’s filers increased by about a quarter during the same period, a trend not far from the national average, though Madrid typically reported zero tax payments. Catalonia shows a growth similar to the national average (around 23.6 percent), reflecting a high wealth tax burden there. Catalonia’s decision to lower the tax filing threshold from 700,000 to 500,000 euros appears linked to more filers in that community. Aragon also saw filings surge after its threshold was reduced to 400,000 euros. On average, Catalonia paid roughly 6,627 euros per filer in 2020. The total wealth tax expenditure in Catalonia reached about 546.5 million euros. Andalusia reports 18,997 filers with an average net worth around 2.7 million euros, and the newly announced relief stands to reduce annual payments by roughly 4,913 euros per filer.
What is Wealth Tax in practice?
In general, taxpayers who own real estate tied to business activities, movable capital, insurance, or luxury goods must declare Wealth Tax when their net wealth exceeds certain thresholds. The primary residence enjoys an exemption up to 300,000 euros. In regions like Catalonia, Valencia, and Extremadura, the filing obligation starts at 500,000 euros, increasing the number of filers. In Aragon, the threshold sits at 400,000 euros. A taxpayer might own multiple residences, which can trigger the tax even if wealth is not extraordinary. Ruben Gimeno notes that wealth tax remains a major talking point for critics. A broad segment of the tax receipts comes from filers with wealth between 300,000 and 1.5 million euros, while a smaller share comes from those with multi-million euro bases. A tiny fraction of taxpayers holds the lion’s share of wealth, underscoring the distribution of tax liabilities across the population.
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