Do you need to raise taxes in Spain? For the Organization for Economic Cooperation and Development (OECD), yes, since it is a necessary measure to carry out a necessary process of adjusting the accounts, due to the deficit and debt being too high.
“To deal with future expenditure pressures, fiscal consolidation should be based on the mobilization of additional revenue through the gradual expansion of the value added tax (VAT) base, the increase of taxes related to the environment and improving the efficiency of spending,” says the forecast study that was presented on Wednesday.
However, the context invites reflection. The call from the OECD takes place just as the Tax Agency enters more than ever. In fact, tax collection in Spain has experienced a significant increase in recent years. The Treasury brought in 271,935 million euros in its coffers in 2023, which represents the best tax harvest in history, surpassing – also thanks to the effect of inflation – even the one that went get in 2022.
Likewise, all of this is happening when taxes have been increasing for years. According to the Institute of Economic Studies (IEE), fiscal pressure in Spain will be around 39% of GDP in 2023, which in itself represents a historical record. In addition, this figure has increased by 2.9 points of GDP since the pandemic.
In detail, if we look at the general rate of VAT in Spain it is 21%: higher than that of countries such as Germany, France and the United Kingdom. So the initial question is legitimate. Do we really need to raise taxes more? There is no shortage of arguments. Because the fiscal pressure in Spain continues to be lower than the eurozone average, which is 41.2% of GDP. With regard to VAT, the OECD actually indicates that the tax base should be expanded, as there are still too many activities or products that are exempt or with super-reduced rates. If they then look at the debt (114% of GDP), then Spain should tighten its belt, because the country is behind Greece, Portugal and Italy. The tax lever is one of the possible options.
The OECD insists that more taxes would not only comply with the fiscal rules required by the EU, but also rebalance accounts that are currently unbalanced.
“The ratio of public debt to GDP is high, and spending is strongly inclined towards pensions, to the detriment of items that promote growth. In addition, an increase in expenditure related to the aging of the population is expected”.
We must not forget that pensions were revalued by 8.5% in 2023 and that this item represents 11.5% of GDP (while in Europe it is around 10%). Not counting that the waiver of budgets for this year and the extension of measures to ease the impact of inflation – such as reduced VAT on certain foods – do not go in the direction of reducing a deficit that continues to be above the desired 3% of GDP demanded by Brussels.
“The aging of the population, the slow growth of productivity and the lack of investment slow down Spain’s growth potential”, warns the OECD.
Josep Comajuncosa, head professor of Esade’s Department of Economics, Finance and Accounting, emphasizes that “the problem is that the EU has re-introduced the tax rules, which were suspended since covid and are now stricter. The evolution of public debt must have a downward trend”. And the OECD – remembers Comajuncosa -, among the various options, considers that the social costs of reducing public spending, such as that of pensions, “would be too high”. But it must also be considered that an increase in social contributions was announced. “And this is a way to raise taxes”, he emphasizes.
