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Madrid and the Balearic Islands, the communities with the largest gap between high and low incomes | Economy

A man walks through a shanty town next to the train tracks in Chamartín, near the Cuatro Torres in Madrid's financial district.
A man walks through a shanty town next to the train tracks in Chamartín, near the Cuatro Torres in Madrid’s financial district.David Exposito

The number of the rich on the personal income tax return, those with incomes above 601,000 euros, decreased in 2020 for the first time after six years of uninterrupted growth. The figure fell by 6.7% compared to the pre-covid period, but this does not mean that inequalities have disappeared. In the year of the pandemic, the richest 10% earned 1.63 times more than the poorest 40%. Madrid and the Balearic Islands lead this inequality rankingaccording to calculations prepared by the technical union of the Ministry of Finance (Gestha) based on the latest statistics from the Tax Agency on personal income tax filers.

Both in the region of the capital and in the Mediterranean archipelago, the gap was higher than the national average in 2020 ―excluding the Navarrese and Basque regional communities and including the autonomous cities of Ceuta and Melilla―: in Madrid, 10% of taxpayers richest earned more than double (2.18 times) that of the poorest 40%. In the Balearic Islands, the difference is somewhat lower, 1.77 times. They are followed by Catalonia, Murcia and the Canary Islands. At the other extreme were Asturias (1.14), Extremadura (1.21), Castilla y León and Castilla-La Mancha (1.22).

Compared to 2019, the pandemic somewhat reduced the gap between personal income tax bases: the Gini index ―the coefficient that measures income inequality, where 0 is total equality and 1 is maximum inequality― was reduced by 1.2% in 2020 compared to the previous year, up to 0.37 points. Madrid and the Balearic Islands, although they had the highest rates (0.43 and 0.49), registered the most marked reductions, of 2.8% and 2.1%, respectively. Inequality fell above the national average also in Castilla y León (-1.7%) and Catalonia (-1.4%).

This decrease is largely explained by the fall in capital income, which has a greater specific weight for the wealthiest taxpayers. While the social shield to mitigate the impact of the pandemic, such as the relaxation of the ERTE, promoted the increase in the remuneration of labor income and the number of declarants, the returns on movable capital – such as shares or interest – collapsed : declarations fell by 15.8%, and remuneration almost 20%, being 3,578.5 million less than in 2019. Income from economic activities also decreased, by 2.3% declarations and 14.8% rents, with a drop in average profit of 12.8%. In the case of leases, the decline was less: 0.5% in settlements and 5.5% in amount, according to Gestha’s calculations.

In fact, the 2020 financial year was also disastrous for the markets, which closed in the red after months of total or partial paralysis of economic activity and constant uncertainty about the evolution of the pandemic and the economy. This disaster is reflected in savings income, which decreased by 6,219 million in 2020. Half of this decrease (3,145 million) was concentrated in the filers of the highest bracket, with income of more than 601,000 euros.

Increase in the gap compared to 2010

Although the gap in income filers was reduced in 2020, there were communities that experienced evolutions in the opposite direction. Among them is Murcia, where the Gini index increased by 4%, Aragón (1.8%), Cantabria (1.5%), Castilla-La Mancha (0.9%) and Andalucía (0.8%). The indicator also grows if the comparison is made with 2010, just after the bursting of the real estate bubble: the income gap worsened by 1.3% at the national level.

The austerity imposed during the Great Recession slowed down convergence and increased inequality among those filing personal income tax in nine of the 15 common regime communities, according to data compiled by Gestha. In Madrid (5.5%) it grew well above the average, as in Murcia (4.5%) and the Balearic Islands (4.1%). The Gini index also increased more than the national average in Canarias (2.9%), Ceuta (2.2%) and Melilla (2.0%) with respect to 2010, while the greatest reductions were experienced by Asturias (-7 .4%), Castilla y León (-4.8%) and Cantabria (-4.7%).

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