The fiscal pressure in Spain remains high, at levels close to the highs of 2007, just before the bursting of the real estate bubble. Funcas published an article yesterday in which it calculates that the fiscal pressure (collection in relation to GDP) of the four main taxes (IRPF, VAT, corporations and special taxes) was 17.8% of GDP last year. Slightly below the 18.2% of the previous year.
Funcas researcher Desiderio Romero highlights that analyzing a long period since 1995, “the growth in fiscal pressure” starts “in 2010, after the collapse in collection with the end of the real estate bubble” and accelerates “between 2019 and 2022.” According to the Funcas researcher, the increase “is essentially explained by the evolution of personal income tax, due to constant increases in both the width of the tax base and the average rates applied.” And he specifies that “an important part of this increase in the post-pandemic years is due to the general failure to correct cold progressivity.” Romero refers to the lack of deflation. If the personal income tax tax brackets are not raised according to inflation (deflated), the salary increases of workers aimed at compensating for inflation end up causing the rates they pay to the Treasury to become increasingly higher. In the period from 2019 to 2023, the average personal income tax rate increased by 1.6 points.
The researcher recognizes that “the available evidence supports that this increase in income from personal income tax can favor an improvement in the redistribution of income”, but qualifies that “they can also generate costs on economic growth that should be taken into account both in the debate “technical as well as political.”
Personal income tax was the tax where fiscal pressure grew the most since 2010, with an increase of two points of GDP until 2023, according to the Funcas researcher. The Airef has estimated that inflation caused an increase in collection through personal income tax between 2021 and 2022 of 6.2 billion. Romero recalled that “the phenomenon of inflation in the tax not only affects the rate, but also other elements of the tax such as minimums or deductions.”
In the case of VAT, Romero highlighted that “the reduction in the VAT tax pressure in 2023 is temporary, a consequence of the tax reductions.”