General idea
I think we all agree that Spain’s current deficit is very difficult to deal with, and we must all make an effort to move this great country forward. But is it really necessary, in one of the strongest crises in the world, to raise taxes?
What is happening?
I believe 100% that the answer is no, it is not the time. If our government finally decides to raise taxes, it will stifle both the population and businessmen, who will see their profits fall even further due to this huge crisis.
It is clear that our government will have to raise taxes, but please, now is not the time. Let’s look at a brief comparison of fiscal measures in our neighbouring countries with Spain.
– In France, they have decided to cut taxes for companies, and a massive support for youth employment. “We are delighted to be able to offer new support to companies at the end of August to tell them that we will reduce their taxes to make them more competitive, and by investing in a green transition”. This tax cut pledge will run until 2022.
– Germany has decided to temporarily cut VAT to restart the economy.
– Italy, being the economic powerhouse with the worst fiscal position, has also decided to cut VAT, to revive consumption and curb the growth of unemployment, and they are still considering whether they can cut corporate taxes to boost their competitiveness.
Well, having seen them all, now we have Spain. It is true that Spain collects less in taxes and social security contributions than the average for the euro countries. It is also true that there are countries that collect even less and work well, as is the case of Ireland, Australia… but well, to reach a winner on what to do here, we have different economists, and after all they are ideal, which one may seem better than the other.
What we do need to know objectively is the difference between tax burden and tax effort.
The tax burden is the level of taxes obtained in each country, obtaining a punctual ranking, which can be higher or lower depending on the country, and this is where Spain is below the European average.
However, the tax burden is how much it costs the citizens of a country to pay their taxes. For example, it is not the same in Germany to pay 23% VAT (2% more than in Spain) if their average income is around 2200 euros, whereas in Spain it is around 1200 euros. In other words, it depends a lot on the capital and the income of the citizens of the country, and in Spain the tax burden is already too high to have to stifle Spaniards even more.
Here we can see the tax rates that Spaniards face according to the average of the European Union. We can see that they are generally higher than in Europe, but then why do our politicians say that there is such a big gap in our country’s tax policy?
Broadly speaking, the answer lies in tax deductions, reduced VAT rates and the black economy.
The difference lies in what are known as implicit rates and official rates. The implicit rates calculate the real rate that is being paid, while the official rates do not take into account allowances, tax deductions…
To see this better, we will use an example: the implicit rate of indirect taxes in Spain is 13.8%, compared to 16.8% in the European Union. However, Spain has a general VAT rate of 21%, but the reality is that the real pressure felt by households is 13.8%, largely due to the wide variety of products that are taxed at a reduced (10%) and super reduced (4%) VAT rate. This is one of the aspects that the Bank of Spain called for reform in the last annual bulletin, which explained that the difference with the euro zone is due to “the higher percentage of consumer goods taxed at the reduced or super-reduced rate”.
The same BdE report warned that “a distinctive element of Spanish taxation that could be reconsidered is the high level of tax benefits. These benefits, derived from the presence of numerous exemptions, deductions and special reduced rates, often generate significant revenue losses and distort the efficiency and fairness of the tax system”, the report said.
Finally, another common explanation for Spain’s lower relative tax revenues comes from the greater weight of the underground economy. One of the latest available data that attempts to estimate the size of the informal economy was presented in 2019 in a report by the International Monetary Fund, which puts it at around 20% of national GDP.
Conclusion:
Therefore, broadly speaking, we can say that in order to collect more revenue, it is not necessary to raise taxes, it would simply be enough to redesign the tax system, bring the underground economy to the surface and cut the countless tax deductions and allowances, which serve little purpose in our country, and make our tax collection gap compared to our neighbouring countries so large.
