CiU abolishes the Inheritance Tax with PP’s votes in the middle of the debate over the Catalan Government’s finances

Barcelona (ACN).- This Wednesday the Catalan Parliament approved a reform of the Inheritance Tax, which comes into force retroactively, from January 1^st 2011. The reform almost eliminates the Inheritance Tax for first and second-degree relatives, so among married couples and between parents and their children or grandparents and grandchildren. It sets a fiscal bonus on 99% of the tax, leaving a symbolic 1% that cannot be eliminated at Autonomous Community level. The party running the Catalan Government, the Centre-Right Catalan Nationalist Coalition ‘Convergència i Unió’ (CiU), proposed this tax modification as it was one of its main electoral promises. The reform has passed with CiU’s votes, together wit the parliamentary support of the People’s Party (PP) and of the MP Joan Laporta, who does not belong to any group. The Centre-Right MPs voted for and the Left-Wing opposition voted against it. They criticised the reform for three main reasons: firstly, for “benefiting the richest” in society; secondly, for passing the reform in a moment when large public expenditure cuts are being approved; and, thirdly, for passing the reform without having a proper debate at the Catalan Parliament. The Catalan Finance Minister stressed that the previous Left-Wing Government had already approved a reform and added that this tax is unfair and made Catalonia one of the areas in Spain where inheriting is most expensive, causing a fortune drain. The previous Catalan Government had already approved a gradual reduction of the Inheritance Tax in 2009, which would have completely come into force on July 1^st 2011. Today’s decision adds to the previous reduction, which focused on reaching a minimum base amount to pay the tax. With current forecasts, today’s decision means that the Catalan Government will not receive 150 million euros in revenues in 2011 and 102 million in 2012.

Following what many other Autonomous Community Parliaments have approved, Catalonia sets a fiscal bonus of 99% on the tax amount, which in practical terms corresponds to almost the total elimination of the Inheritance Tax. This tax cannot in fact be completely eliminated, as technically the Catalan Government can only manage fiscal bonuses, tax base deductions and the types of relatives affected, but not the existence of the tax itself. In addition, siblings, nephews, cousins, other relatives or friends are excluded from this bonus.

Actually this last point was criticised by the PP, which voted for the tax modification. The PP wanted the reform to include remaining relatives and friends too. Finally CiU agreed with the PP that the Catalan Government will push for including those categories in the reform as well before 2013 if the situation for the Catalan Government finances allows. In addition, the PP also wanted the elimination of the Donation Tax. After negotiations, CiU engaged in also eliminating it before 2013 if the financial situation of the Catalan Executive improves.

The Left-Wing parties consider the reform “unfair” and not pertinent at the moment

The Catalan Socialist Party (PSC), the Catalan Green Socialist Party (ICV-EUiA), the Left-Wing Catalan Independence Party (ERC), the Anti-Catalan Nationalist Party (C’s) and the Radical Catalan Independence Party (SI) all voted against the reform. Despite differences in the tone and in some arguments, they all coincided in considering this reform “unfair”. They believe it “benefits the richest” in society since the previous reform already excluded most of the people from paying this tax, as inheritance below 500,001 euros was excluded. They also criticised CiU and the PP for approving this tax in a moment when the Catalan Government is balancing its budget and needs to reduce its deficit. Left-Wing parties have said to not understand why taxes affecting the richest were being cut, while public expenditure on health or education was also reduced. The Catalan Minister for Finance Andreu Mas-Colell stated eliminating the tax will have positive effects for society. Finally, the Left-Wing parties criticised the way the parliamentary debate was held, as no detailed discussions or votes were allowed.

The second modification in a few years

The previous Left-Wing Catalan Government already modified this tax and lowered inheritance amounts. For instance, if a father leaves an inheritance worth less than 500,000 euros to his daughter, the daughter did not pay the tax. Beyond 500,001 euros, she would start paying on everything above that amount. These fiscal bases were different considering how close the relatives were. This modification made that for the vast majority of inheritances the tax was not applicable. However, the richer still had to pay. From a budget perspective, the Catalan Government was getting some 800 million euros in 2008 with this tax. After the Left-Wing Government’s modification, it would have received some 258 million euros in 2011, 150 of which corresponding to first and second degree relatives.

Catalonia, now in a better position than Madrid and Valencian Communities

The current modification adds to the previous, therefore it takes into account the previous deductions and now the 99% bonus, as the Catalan Minister for Finance, Andreu Mas-Colell, explained. This is why Catalan citizens will be in a better position than those in Madrid and Valencia, who only get the 99% bonus but not the initial deduction.