How will the IRPF deflation to be implemented by Ayuso in 2023 affect the people of Madrid?

President of the Community of Madrid, Isabelle Diaz Ayusoannounced this Monday in the second edition of the El Debate forums that it will reduce taxes for the people of Madrid through a deflation of income tax bracket From January 2023.

Ayuso has made a decision with the intention of stopping the collection caused by inflation And the potential increase in wages is high. Since 2021, Spain’s economy has faced a general increase in prices that has increased as a result of the war of Ukraine and the management of the Sanchez government. This affects the Spaniards directly, especially through the prices of energy, fuel and basic products in the shopping cart, they tell the Madrid government.

In the month of April, prices increased by 8.3%, the highest increase in nearly 40 years, and forecasts show that throughout 2022 Average price increase will be between 6.5% and 8.5%, This situation afflicts all the families, who can buy less things with the same money.

Ayuso’s economic team is of the view that wage increases in these circumstances do not cause people to pay more in their income tax. Looking to the next year, and above all to compensate for non-payment of salary increases, The community of Madrid is going to lower its personal income tax rate by the amount that increases wages.

This measure, which will be applicable January 1, 2023, The plan is to fix the income brackets for which each madrillion is taxed so that they can adjust for inflation, that is, a price increase does not translate, moreover, into a covert tax increase due to the fact that their salaries has lost purchasing power. Therefore, avoid the situation where wages increase but not the purchasing power of the people of Madrid.

,It is about households who pay the same percentage tax, even if they earn more, because things also cost more. We want families to keep what they earn, and that is why we will keep our tax deductions,” he points out on behalf of the community.

In this sense, they affirm that it is important not to take advantage of inflation. “to cheat” And raise the tax “by the back door”.

“It is shameless that Sanchez’s government is taking advantage of the loss of families’ purchasing power to increase collections and the already intolerable financial effort that the Spanish require,” he criticizes. “A responsible government cannot ask citizens to tighten their gears to tax more and spend more,” he says.

How will it be implemented?

If a person sees a 5% increase in his salary due to an increase in inflation, that salary increase could make him pay more taxes, not only because he is taxed on a higher basis, but also because he A step in the tax scale may be due to this effect, so that part of it is taxed at a higher rate, which increases the effective average rate as a whole. «That leap is called cold progress»Point to Madrid executive.

To do this, the upper and lower ends of each income bracket are updated with the deflator to be applied. For example, if the ends of the first section were for simplicity, 10.001-20.000 euros, Deflation of 5% to include the effect of prices would become both extremes 10.501,5-21.000 euros.

In this way, the new end of each segment is widened, allowing more and more income to be taxed at lower marginal rates, thus the effect of freezing progress.

On the other end, If the taxpayer’s salary does not increase, Deflation constitutes a reduction in taxes, because it would tax more income at lower marginal rates and pay a lower effective average rate.

100 million will be saved for each deflation point

CEO of Institute of Economic Studies, Gregory Left, an expert in taxes told El Debate that for each point of correctly deflating the CPI for those who file in Madrid, the total savings for them would be 100 million euros. For each announcer, there will be a saving of about 30 euros for each point.

If deflation is done by four points, as is being talked about (it is estimated with 3-4 points), the total savings will be 400 million and each taxpayer will be 120 euros.