The Canary Islands Government has announced its preference to lower personal income tax (IRPF) next year, particularly for purchasing and renting homes, rather than reducing the General Indirect Canary Islands Tax (IGIC). This decision, explained by Finance Minister Matilde Asián during the presentation of the 2025 budget draft, prioritises benefiting low-income groups.
Why Personal Income Tax Is Prioritised
According to Asián, reducing personal income tax deductions offers greater benefits to low-income groups because these deductions consider the economic capacity of individuals. In contrast, the IGIC, as a consumption tax, affects all income levels equally, regardless of financial capacity.
Tax Measures for 2025
The Canary Islands’ 2025 budget draft amounts to €11.678 billion, an increase of 3.3% (€376 million) compared to the previous year. Specific improvements to personal income tax deductions include:
- Deductions for Home Purchases: Up to €330 per year.
- Deductions for Renters under 40 or over 75: Up to €800 per year.
- New Deduction for Renovation Costs: To encourage the refurbishment of vacant properties for rental purposes.
The elimination of the deduction for price increases is offset by measures such as raising the personal and family tax allowances and adjusting regional tax rates in all brackets.
Planned IGIC Changes
Despite focusing on personal income tax, the government has proposed specific IGIC reductions:
- Reduction from 7% to 3%: For sports activities, to promote health and prevent illness.
Key Budget Priorities for 2025
The government emphasised that social spending, particularly on health, education, welfare, and housing, is the main focus of the 2025 budget. Examples of increased allocations include:
- Healthcare: €4.589 billion (+€220 million, a 5.04% increase).
- Education: €2.154 billion (+€61 million, a 2.93% increase).
- Social Welfare: €761.54 million (+€59 million, an 8.37% increase).
- Housing Initiatives: €171.86 million (+11.15%), focusing on increasing access to housing and incentivising the rental market.
Support for La Palma and Other Measures
The budget allocates €50 million for the economic recovery and reconstruction efforts on La Palma following the volcanic eruption.
Other fiscal measures include:
- Fuel and Oil Tax Reforms: Adjusting refunds for farmers and hauliers based on actual consumption.
- Expanding Fuel Rebates: From February, the 20-cent rebate currently available on the green islands will also apply to Lanzarote and Fuerteventura.
Despite challenges such as geopolitical tensions and transitioning to the new European fiscal framework, the Canary Islands’ budget prioritises fiscal stability while allocating significant resources to essential sectors like education, health, and housing.
