- On 4 October the Council of Ministers approved the draft budget for 2023.
- It included an income-tax cut for low earners and higher taxation of the largest savings income.
- It is a draft, not a law: it indicates a direction, but it is wise to wait for the final rule before deciding when to realise a gain or take a dividend.
On 4 October 2022 the Council of Ministers approved the draft General State Budget for 2023, which included an income-tax cut for low earners and higher taxation of the largest savings income. It was the starting point of a parliamentary process in which the measures could change, but it already set the direction of fiscal policy for the following year.
The budget is not just an accounting document: it sums up a government’s priorities on how much to spend, on what and how to finance it. For companies and families, its relevance lies in the tax changes it may introduce, the aid it provides for and the economic scenario on which it is based. Reading it calmly, taking nothing for granted until it is approved, lets one anticipate the environment and prepare the year’s decisions.
A draft, not a law
A draft budget is the text the government sends to Parliament for debate and approval. Until it is finally approved, the measures can change, so what is announced indicates a direction but is not yet a rule in force.
During passage, parliamentary groups can propose amendments, and the final text may differ from the initial one. It is therefore prudent to distinguish between what is proposed and what is approved. Taking definitive decisions on the basis of a draft is risky, although it is useful to prepare scenarios and calculate how the measures would affect one if approved as presented. Meanwhile, companies and families can review what part of their income comes from work and what from savings, to understand which measures would affect them most.
Earned income and savings income
Income tax distinguishes between earned income and savings income, such as interest, dividends and capital gains. The cut applied to low incomes, while the increase was concentrated in the highest bands of savings income, which mainly affects those with significant financial wealth.
This distinction matters because each type of income is taxed on a different scale. Earned income, such as a salary, is taxed on one progressive table; savings income on another, with its own bands. When one of the two is changed, the effect depends on what proportion of each person’s or family’s income comes from each source, something worth being clear about before interpreting the headlines. The specific bands and rates will only be known in the approved text, and the autonomous regions also hold powers over part of the tax.
When to realise a gain
For families with assets, the savings band was changing again. Deciding when to realise a capital gain or take a dividend could have a significant tax effect. It is a decision that should not be taken for tax reasons alone, and that is worth studying with an adviser, weighing the timing, the amount and the purpose of each transaction.
A capital gain arises when an asset is sold for more than it cost; until then, it is only a latent gain. The moment of sale determines the tax year and the rate applied. But investing has its own logic, and selling or holding solely for tax reasons can lead to poor decisions. The prudent approach is to look at the whole: goals, risk, liquidity and taxes. This note is general information, not a recommendation. When several transactions are possible, it is wise to order them by goal and not by tax, and then check what tax effect each would have.
Taxation should not steer investment, but it cannot be ignored either.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
