Funcas detects a growth in the fiscal pressure of the four main taxes, especially personal income tax

MADRID, 17 Abr.

Funcas detects a growth in the fiscal pressure of the four main taxes, especially personal income tax


The constant increases both in the breadth of the taxable base and in the average rates applied in personal income tax largely explain the increasing trend in tax pressure, which began in 2010, according to the conclusions of a publication by the Foundation of the Savings Banks (Funcas).

At the end of March, the Tax Agency published information, updated for 2023, on bases, average rates and collection of the four main tax figures: Personal Income Tax, Corporate Tax, VAT and Special Taxes (IE).

These taxes, together with social contributions, are the backbone of the State's non-financial resources. In fact, in 2022, the weight of these four large tax figures in the aforementioned non-financial income was 49%, and 31% in the case of social contributions.

According to the conclusions of Funcas expert Desiderio Romero, the growth in fiscal pressure in these four taxes is not a recent phenomenon. On the contrary, the author of the study indicates that it is an ongoing process that started in 2010, after the collapse in collection with the end of the real estate bubble.

This process accelerated between 2019 and 2022 until it reached 18.2%, exceeding the peak of 18% reached in 2007. Furthermore, this increasing trend in the fiscal pressure of these four taxes is essentially explained by the evolution of personal income tax, due to constant increases both in the breadth of the tax base and in the average rates applied.

According to the author's notes, an important part of this increase in the post-pandemic years is due to the general failure to correct "cold progressivity."

"The available evidence supports that this increase in income from personal income tax can favor an improvement in the redistribution of income; however, it can also generate costs on economic growth that should be taken into account in both the technical and political debate," he said. pointed out the expert.

In 2010, a new stage of growth in the fiscal pressure on these four taxes began with implications for the current situation. A growing trend is thus perceived since 2010 with an average of 0.36 points per year, rising to 0.61 points in the years 2020 to 2022. The growth of the pressure of these taxes in the years 2019 to 2023 has been 1 .4 points of GDP.

Personal income tax has been the tax where fiscal pressure has grown the most since 2010 with an increase of 2 points of GDP until 2023; The increase has been 1.3 points between 2019 and 2023. "The tailwind of inflation and the absence of correction of cold progressivity helps explain this growth," is explained in the Funcas publication.

In fact, the Independent Authority for Fiscal Responsibility (AIReF) has estimated a joint increase in personal income tax collection for 2021 and 2022 of 6.2 billion as a consequence of inflation. It must be remembered 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.

For its part, the fiscal pressure of Corporate Tax has been reduced from the peak of 4.2% in 2007 to average levels of 2% in the pre-pandemic situation. With some frequency, in the public debate the 2007 collection is taken as a reference objective, although the author has warned that it is forgotten that this level was reached in the exceptional circumstances of an intense real estate bubble, in the context of a cycle very prolonged bullish trend.

In fact, the tax pressure for this tax has been around 2% in the period 2012 to 2019. However, the tax pressure borne by companies in 2023 would rise to 2.6% if the 2.9 billion were included in the calculation. collected by temporary taxes (property benefits) to the energy and banking sectors.

"The transformation of such temporary taxes into definitive ones will increase in the long term the tax burden borne by societies," warned the author, who also points out that apart from the design problems of such sectoral taxes, their inclusion in the tax system has ignored the costs that, according to available news, it will generate in terms of relocation of investment to neighboring countries.

The fiscal pressure for VAT increased 1.2 points between 2010 and 2023, being 0.4 points between 2019 and 2022. According to AIReF estimates, the accumulated increase in collection in 2021, 2022 and 2023 due to the effect of inflation was of 23.5%, 60.6% and 71.7%, respectively.

According to Funcas, the reduction in the VAT tax burden in 2023 is temporary, a consequence of the tax reductions applied as part of the social shield. The author of the report has warned that it is foreseeable that it will rebound once all the reductions that have been applied to tax rates disappear, such as certain foods.

Finally, the fiscal pressure of excise taxes shows a downward trajectory due, among other causes, to the lack of updating of tax rates, expressed in euros, to inflation.

Aside from the arguments for and against the update, the excise tax on beer has not been updated since 2005, the hydrocarbon tax applicable to gasoline and diesel since 2009, the tax on different tobacco products since 2013, and the of alcohol since 2016, according to data from the Tax Agency.

The publication also details that the changes in tax collection are explained by the evolution in the size of the bases and average rates. The breadth of the bases can increase or decrease due to several interrelated factors: economic cycle, inflation, regulatory changes, as well as tax avoidance-evasion.

Regarding personal income tax, the bases show a growing trend with an increase of 5.4 points of GDP between 2017 and 2023 (52.3% to 57.7%). In 2020, in the middle of the pandemic, a level of 60.3% is reached. This is an atypical value, coinciding with the pandemic and in a context of absence of regulatory changes that justify it. The average rate increased 1.6 points between 2019 and 2023.

Regarding Corporate Tax, the bases were on average between 2013 and 2019 around 8.6%. However, they experienced an increase of 3.9 points between 2020 and 2023. From 2021 they were above 10% until reaching 12.1% in 2023. The average rate has remained stable at around 20.5% since 2016.

In VAT and special taxes, the indirect tax bases clearly grow from 2021, especially in the case of VAT: 4.8 points of GDP between 2020 and 2023. However, the average VAT rate has remained the same stable in recent years.