Ayuso defies the Treasury with a new income tax cut

BarcelonaA new tax cut in Madrid is in response to the financing model proposal agreed upon between the ERC and the PSOE. Isabel Díaz Ayuso announced this Monday that her region will lower the regional income tax brackets by half a percentage point starting next year. These brackets were already the lowest in the country. The minimum rate will be 8% and the maximum 20%, further distancing itself from Catalonia, where the rate ranges from 9.5% for low incomes to 25.5% for taxpayers earning more than €175,000 annually. With this income tax cut, Ayuso boasted that a Madrid resident with an annual salary of €35,000 will pay €635 less than a Catalan with an equivalent salary. Furthermore, the president frequently points out that Madrid lacks its own taxes and contrasts her model of "freedom" with the "confiscation" carried out by the Catalan government. According to the regional government's calculations, 2.9 million taxpayers will benefit from the new tax cut, saving them €500 million. Madrid has implemented 34 tax reductions since Ayuso became president in 2019, and overall, sources within the regional government estimate the savings for Madrid residents at €40 billion.

The timing of Ayuso's announcement, at a press breakfast, is significant, given that it hasn't even been two weeks since Finance Minister María Jesús Montero presented the proposal for a new financing model. One of the key aspects of the proposal is, in fact, combating massive tax cuts—Madrid has also practically eliminated inheritance and wealth taxes—and the minister even hinted at the possibility of introducing a mechanism in the future to counteract the "fiscal dumping" that Madrid champions. That Ayuso would be the main opposition to the new financing model was predictable. In fact, the entire People's Party (PP) has sided with her, regardless of the fact that some of the regions they govern, such as Valencia, Murcia, and Andalusia, are among the biggest beneficiaries of the new calculation method. Madrid has made its move while the PSOE and ERC have yet to convince their investiture partners, whose support is essential for the new model to be approved by Congress. One of the most belligerent parties, Junts, is already preparing a strategy this week to shift the pressure onto ERC: the only acceptable proposal, Junts says, is the economic agreement.