Final decision on Catalonia’s Inheritance Tax yet to be taken

Barcelona (ACN). - On Sunday, the Catalan Government’s Secretary, Germà Gordó, stated that the Executive might not completely abolish the Inheritance Tax. Gordó said in an interview that the tax might be kept for third and fourth  grade heirs, which means that only first and second grade heirs would be affected by the decision. This would mean that inheritance awarded to a married couple, from parents to sons and daughters, or from grandparents to grandchildren would not pay the tax. However, inheritance among siblings, friends or, for instance, from an aunt to her nephew would pay tax. Gordó’s words launched a controversy that increased during this Monday. The Catalan Ministry of Finance wanted to stop it and said that the abolition or the important reform of the Inheritance Tax system has not yet been agreed. However, political quarrels continued. In order to cut the debate, the President of the Catalan Government, Artur Mas, took the floor in the evening and said “Regarding the Inheritance Tax, Catalonia will be, to the lesser extent, either paired or in a better position than Madrid and València”. These are the Autonomous Communities in Spain with the lowest Inheritance Tax, almost 0%. Mas added “A Catalan who has been making efforts all its life does not have to pay more taxes for an inheritance than any other inhabitant of the Spanish State”.

The promise to abolish the Inheritance Tax

The Inheritance Tax is managed by the Autonomous Communities in Spain. Almost all of them have abolished it by having it at almost 0% of taxation; however Catalonia has not done so. These decisions have created fiscal competition amongst the different Communities to attract large fortunes. The previous Left-Wing Catalan Government reformed the tax, with the changes to the system coming into effect as of the 2010 budget. Only large inheritances had to pay this tax. The reform meant the practical abolition of it for the vast majority of citizens, however not for those in better financial positions. The Centre-Right Catalan Nationalist Coalition, Convergència i Unió (CiU), promised in the last Catalan elections (held in November) the total abolition of the tax with retroactive implementation from the 1^st January 2010. CiU is now in control of the Catalan Government and made budget stability its first priority. The 2011 budget is yet to be approved (the Catalan Government is currently working with an extension of the 2010 budget) and it is committed to reducing the public deficit to 1.3%, which includes a drop of 10% in public expenditure. The Catalan Government announced on several occasions its intension to keep its promise and abolish the Inheritance Tax. On one side, Left-Wing parties criticised the Government for abolishing this tax that would bring around 250 million euros of revenue in 2011. On the opposite side, the Catalan People’s Party (PPC) asked the Government not only to abolish the Inheritance Tax but to do so with the Donation Tax as well. The Catalan Executive therefore finds itself in a position whereby it can strictly follow its electoral promise or prioritise not to abolish a tax while public expenditure is being cut. The issue has been the focus of much political debate over the past few weeks, and the Catalan Government has continued to insist, either through its Spokesperson Francesc Homs or through the Minister for Finance Andreu Mas-Colell that the electoral promise would be kept. Yesterday, Germà Gordó announced a compromise.

The controversy launched by Gordó’s words

Gordó’s announcement became the topic of political debate on Monday. The Left-Wing parties insisted on their claims not to touch this tax, because it is necessary to balance the Catalan budget, which is affected by public spending cuttings. The Conservative Catalan People’s party demanded CiU to fully keep its promise and even to include the abolition of the Donation Tax to create a better fiscal environment for entrepreneurs. However, the most notorious reactions came from within the ruling Centre-Right coalition, CiU. Gordó is amongst the most liberal members of CiU, Convergència Democràtica de Catalunya (CDC). However, the Christian-Democrat part of CiU, Unió Democrática de Catalunya (UDC), insisted today that their intention is to keep their electoral promise. UDC’s Secretary General, Josep Maria Pelegrí, explained that he is not aware of the final details of the project and has avoided a public debate with Gordó.

The Catalan Ministry of Economy and Knowledge, in charge of the Government’s finances, told CNA that a final decision has not yet been taken. In addition, they reiterated the Government Spokesperson’s words from last week that the measure will be approved in the next 2 to 3 weeks, and not during the course of the current week. The decision is in fact deemed so important that it is being handled directly by the President of the Catalan Government Artur Mas, an economist and former Catalan Minister for Finance, and the Catalan Minister for Economy and Knowledge, Professor Andreu Mas-Colell. Fearing a rolling on debate, the Catalan President, Artur Mas, emphasised this evening his Government’s commitment to place the Catalan Inheritance Tax system paired or even in a better position than those with almost a complete abolition. Mas stated: “A Catalan who has been making efforts all its life does not have to pay more taxes for an inheritance than any other inhabitant of the Spanish State”.