Canary Islands Positioned for Major IGIC Tax Cuts, Say Business Leaders

Pedro Alfonso, the president of the CEOE in Tenerife, made a significant announcement on Friday, revealing that the Canary Islands are in a robust financial position to implement a reduction in the IGIC tax. He urged the regional government to consider a strategic and substantial decrease in tax rates, aimed specifically at stimulating key sectors of the economy that have been under pressure.

Encouraging Economic Projections

During the presentation of the economic outlook for the third quarter of 2025, Alfonso shared optimistic projections for the regional budget for 2026, estimating it to grow by €813 million. This growth is accompanied by an anticipated 8% increase in IGIC revenue, which he believes indicates that the budget is well-prepared to accommodate a tax reduction. Such a move could potentially invigorate various sectors, including tourism and retail, which are vital to the local economy.

The Government’s Influence on Tax Policy

Alfonso emphasized that a reduction in IGIC rates would not necessarily result in decreased revenue for the regional government. He expressed a strong desire for revenue growth that is driven by enhanced economic activity and increased family consumption. Critically, he challenged the prevailing narrative that blames businesses for inadequate salaries, arguing instead that the real issue lies in the heavy tax burden on families. He believes that the autonomous government has not adequately addressed this pressing concern, which could be alleviated through thoughtful tax reforms.

Public Administration and Tax Revenue Insights

José Miguel González, Director of Consulting and Commercial Management at Corporación 5, provided further insights into the implications of IGIC collection for public administration. He noted that the projected collection for IGIC in the 2026 budget proposal is set to reach €1.045 billion. González countered the common misconception that lowering tax rates leads to reduced revenue, suggesting that targeted rate reductions could actually enhance overall income by fostering a more vibrant economic environment.

Critique of Current Budgetary Approaches

The CEOE has voiced its support for measures that benefit freelancers, distancing itself from what it describes as the persecutory approach of the central government towards small businesses. González pointed out that the current autonomous budget is unlikely to bring about significant changes to the economic landscape of the Canary Islands in 2026. He emphasized that public administration plays a crucial role in the economy, heavily relying on resources generated from the private sector.

Investment Concerns and Economic Data Analysis

González criticized the budget proposal for indicating a decline in capital transfers, which suggests a reduction in public investment in critical areas such as research, innovation, and infrastructure. He specifically highlighted the decreased funding for the Ministry of Public Works, which he referred to as the government’s primary investment tool. This reduction in investment could have long-term repercussions on the region’s economic growth and development.

Alfonso also raised concerns regarding the welfare state’s impact on budget management. He pointed out that if 86% of the budget is committed to welfare, the remaining funds may not effectively reach the market, leading to inefficiencies. While Spain’s GDP may appear strong on paper, it does not accurately reflect the challenges faced by smaller businesses, which often struggle under the burden of high tax pressures and a significant informal economy.

He characterized several economic indicators in the Canary Islands as troubling, including a 15% informal economy and high tax burdens that overshadow the local economic health. The business association has also sought clarification from the National Institute of Social Security regarding the disparity in mutual insurance registration approvals. Notably, while 50% of proposals are accepted nationally, only 33% are accepted in the Canary Islands. Alfonso warned that rising absenteeism could lead to serious productivity issues, which he termed a hidden tax affecting local businesses and their ability to thrive.

Key points

• The Canary Islands are financially ready to reduce the IGIC tax, according to Pedro Alfonso.
• The regional budget for 2026 is projected to grow by €813 million.
• Alfonso advocates for a strategic reduction in IGIC to stimulate economic activity.
• Public administration is expected to collect €1.045 billion from IGIC in 2026.
• Concerns were raised about the impact of the welfare state on budget efficiency.
• High tax pressures and a significant informal economy are challenges for local businesses.
• Disparities in mutual insurance registration approvals have been highlighted as a concern.