Will 2025 be the year the Treasury Department will cut tax breaks?

MadridWill 2025 be the year the Treasury will touch the tax benefits? If we go by what is detailed in theAnnual Progress Report on the Structural Fiscal Plan 2025-2028, which the Spanish government sent to Brussels in April, the measure should be on track "no later than" the fourth quarter of this year. The objective would be to reduce some of the tax benefits (deductions and similar) of the current Spanish tax system to increase revenue. Specifically, the aim is to permanently increase public revenue by 0.1% of GDP, which represents approximately €1.6 billion, as a result of modifying tax benefits. "The measure is already underway and there is time to achieve this objective," the Ministry of Finance indicated in the document sent in April to the European executive.

For the moment, however, this objective is an aspiration of the Treasury that, taking into account the tax reform approved at the end of 2024, is not expected to be easy to achieve. The Spanish government's latest tax modifications were saved in extremis And after a tortuous negotiation with the investiture partners, some of the executive's proposals were derailed. Among these proposals was, precisely, the elimination of a tax benefit: the government proposed equating diesel with gasoline to eliminate the tax rebate on the first fuel.

This fiscal adjustment was not only a commitment made to Brussels, but would also have served to address the objective of cutting some of the current tax benefits. It also represented revenue for the State of more than €1 billion annually. Although the Ministry of Finance, led by María Jesús Montero (PSOE), intended to approve this measure later, it has not done so for now—in the July disbursement of European funds, €460 million was frozen for this reason.

For the moment, the Treasury has not given any clues as to what other tax benefits could be revised or eliminated. The 2025-2028 Structural Fiscal Plan, as well as Component 28 of the Recovery, Transformation, and Resilience Plan, only make a general reference to them. "Tax measures will be approved to make the tax system more effective. With the aim of increasing revenue, supporting the energy transition, and promoting equity, tax measures will be adopted based on the recommendations of the Committee of Experts and the working group on the impact of tax benefits," the Structural Fiscal Plan states.

Thus, the only thing that is clear is that the Treasury will focus on what the experts have said. In addition to what is recommended in the White Paper for tax reform in 2021, sources from the Ministry of Finance tell Efe that they will also base their decisions on the analyses of the Fiscal Authority (AIREF), as well as on the opinions of the group of experts made up of the Institute for Tax Studies and the Tax Agency.

What do the experts say?

The reports published so far point in several directions: from touching on tax benefits linked to lottery winnings, as well as severance pay, to reduced VAT rates or diesel itself and its differentiation from gasoline.

In 2020, the Airef published a report on public spending and estimated the current tax benefits at around €60 billion annually. Specifically, it studied six tax benefits linked to personal income tax, the total cost of which amounted to €8.391 billion. It also studied tax benefits in VAT (reduced rates, for example, amounted to €17.787 billion), as well as the tax difference between diesel and gasoline, which translated to €1.162 billion less. Regarding corporate tax, it analyzed reduced rates, deductions for research and development incentives, and deductions for donations.

Permanent increase in income

Along with the review of tax benefits, the structural fiscal plan monitoring report also includes the adoption of measures to permanently increase tax revenues by up to one-tenth of GDP annually during the 2025-2028 period. In this regard, the Treasury hopes to achieve this milestone with the tax measures adopted with the reform at the end of 2024. These measures include new taxes on banking and e-cigarettes, a minimum corporate tax rate of 15% for large multinationals, and an increase in personal income tax for higher capital income.