You don’t have to be a lynx to guess that a new tax increase is coming our way. Until now the Government has resorted to increasing the invisible tax pressure, not deflating the personal income tax rate, and imaginative new taxes on companies that have not worked. But this route has been exhausted and there will be no choice but to make a full-fledged increase in personal income tax. Only in this way can the cuts demanded by the European Union be met to reduce the deficit and public debt.
The Minister of Finance, María Jesús Montero, instead of taking advantage of the upward cycle and excess collection to clean up public accounts, has decided to spend more and with full hands.
But the ECB’s open bar, which during the years of the pandemic promoted easy and cheap money, has ended. 2024 is the year of austerity and we must tighten our belts, even if we don’t like it. The Government of Pedro Sánchez criticized Mariano Rajoy’s austericide to death and has no choice but to increase taxes rather than cut expenses. This seems to be deduced from the budget spending ceiling for next year, which the Executive has increased again by half a point to 200,000 million.
The new EU fiscal discipline rules contemplate a harsh fiscal adjustment for Spain, Italy and France. More is demanded of them than the rest of the partners because their high debt has turned them into high-risk countries. Failure to act now runs the risk of suspension of payments or default in the medium term.
This means for Spain to carry out a structural adjustment equivalent to 0.5% of GDP, about 6.6 billion to reduce its deficit from the current 4.1% to 3% in the next two years. At the same time, it will have to reduce its debt at a rate of 1% of its annual GDP. We are talking about a cut of about 40,000 million throughout the legislature. Only in this way will it be able to reduce its current public debt ratio, which amounts to 107.5% of GDP and is equivalent to nearly 1.6 trillion euros.
It is not going to be easy and in the end there will be no choice but to raise taxes and cut expenses. A perfect storm is brewing and the Finance Minister is not seeing it coming. There are very clear symptoms that tax collection is slowing down. The fact that a 9% increase in State income has been planned is voluntaristic or incorporates an increase in fiscal pressure.
All of this applies to income, but if we talk about expenses, the same thing happens. Interest rates have risen a lot and their budgetary impact is going to be very strong. Airef has warned you: the payment of interest on the debt will go from 30,175 million (2.24% of GDP) in 2022 to 57,800 (3.3% of GDP) in 2028.
And this without taking into account the automatic stabilizers (more social spending) typical of lower growth in the economy.
