Deceptive Tax Cuts

Montero

J.P. Marín-Arrese | The Socialist-run regional governments in Spain face dire prospects in the coming elections next year. High inflation, low growth and rising unemployment weigh heavy on voters’ sentiments against the left-wing coalition governing Spain. So they resort to promising tax cuts as the best recipe to cushion their dwindling support.

The Valencia Chairman, Mr Puig, has announced a cut in personal income tax, mirroring the national Opposition leader’s proposal. Undoubtedly, his survival in office overshadows his loyalty to his own Party’s official line, much to the dismay of the central government.

His decision to reduce tax rates for compensating the fiscal drag inflicted by inflation on incomes, at face value, seems fair and sensible. Otherwise, increased salaries propelled by soaring prices would pay more than warranted. Yet this measure proves wholly ineffective unless the Spanish government follows suit by cutting down the corresponding withholding rates. People would now pay unabated taxes whose likely excess they could only recover in mid-2024. Thus, relief would apply many months after taxpayers acutely felt its need. Most probably, when inflation no longer dents incomes. So this tax cut amounts to a hollow promise that misses outright the purported goal it strives to achieve.

Such a failure renders the initiative utterly useless. Yet rulers facing discomfiture at the ballots about their ability to deliver what they pledge care little. A telling proof the tax debate only serves a short-term political purpose, regardless of whether promises are sound and solidly grounded. Cajoling voters, no matter the price, seems the sole motto guiding such fancy ideas. 

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.