A saving of 500 euros for 3.1 million taxpayers due to the reduction of the IRPF

A saving of 500 euros for 3.1 million taxpayers due to the reduction of the IRPF

The measures included in the Budgets will benefit average incomes and retirees, according to the estimate of the Bank of Spain

   The IRPF reduction that is included in the 2018 Budgets prepared by the PP will benefit 3.1 million  taxpayers with an average saving of almost 500 euros (493.3 euros). That is the estimate published on Monday by the Bank of Spain on one of the star measures collected in this year's public accounts, which are already facing the end of their parliamentary procedure. A calculation that is very close to the one made by the previous government, which had foreseen a reduction of 440 euros for 3.5 million citizens. Likewise, the simulation carried out by the supervisor shows that the main beneficiaries will be the average income and the retirees.

 Specifically, the measures agreed by the PP and Citizens include extending from 12,000 to 14,000 euros the limit for not paying for the IRPF. In addition the taxation for the rents is reduced up to 18,000 euros. Other novelties in this tax figure are a deduction for a spouse with a disability of 1,200 euros per year; and an increase of 600 euros a year in deduction for large families for each child from the fourth (inclusive) and that the previous Executive estimated that 362,790 taxpayers could be eligible.

With these data, the Bank of Spain published on Monday a report entitled 'Distributive effects of the Income Tax reform included in the Budgets' that analyzes the impact of these initiatives. Thus, the body chaired by Pablo Hernández de Cos provides that 2.3 million taxpayers, those with gross income of between 12,000 and 18,000 euros, would see their tax rate reduced in income tax in an average amount of about 480 euros.

By age groups, almost 21% of citizens under 35 years of age would pay less in the IRPF (about 0.8 million respondents), with an average reduction a little lower than 450 euros. For its part, 16% of those over 65 (about 0.6 million taxpayers, compared to the million estimated by the previous Executive) would see their IRPF share reduced by an average amount close to 600 euros. According to the Bank of Spain, "there are no taxpayers whose IRPF share increases as a result of the reform".

In addition, the agency estimates that the total cost of the IRPF reduction will be 1,544 million, something that does not prevent the Budgets from contemplating an increase in tax revenues in 2018 of 6%. In particular, 210,015 million will be reached, a record figure that improves the level of pre-crisis collection. In fact, the public accounts foresee an impulse of the IRPF of 6,5% in spite of the reduction in this figure, something that Montoro justified in his moment by the greater economic activity.

Impact in the medium term

In any case, the Bank of Spain makes clear in its report that it does not analyze the consequences of these measures over a longer time horizon. In this sense, the supervisor warns that the financing of the measures now adopted would require either spending reductions (cuts), or obtaining additional resources (through new taxes, for example) to meet budget stability. These scenarios would affect the net income of the various groups of taxpayers.

In this sense, the new Economy Minister, Nadia Calviño, and avoided to ensure before Brussels last week that Spain would meet the deficit target of 2.2% expected for this year. In fact, the Bank of Spain itself, as well as other bodies such as the European Commission or the IMF, estimate in their forecasts that this limit will be exceeded.