Converging with the EU on social contributions would reduce salaries by 7%

Converging with Europe is not always a good measure.

Oliver Thansan
Oliver Thansan
19 November 2023 Sunday 09:27
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Converging with the EU on social contributions would reduce salaries by 7%

Converging with Europe is not always a good measure. If in Spain the collection of social contributions paid by workers were equal to that of the European Union, salaries would fall by more than 7.3%. They are calculations by Fedea based on the latest figures on fiscal pressure published by Eurostat.

Miguel Ángel García, professor at the Rey Juan Carlos University (URJC) and researcher at Fedea, explains that a salary reduction is not proposed but only the consequences that a convergence with the EU would have are detailed. “In addition, in this model, the social contributions paid by companies would have to be reduced, because more is collected than in Europe,” García reflects.

While in Spain the contributions paid by workers represent 3.4% of GDP, in the EU it is 6%. This difference is equivalent to 2.7% of GDP. In the report, the Fedea researcher points out that it would be “a percentage that is difficult to digest, especially in the lowest income levels.”

Luis Zarapuz, coordinator of the economic cabinet of Comisiones Obreras, points out that to reduce the gap in the contribution of workers' social contributions, the distribution between business benefits and salaries could be changed with the aim of them gaining weight. “Spain has low salaries that are also below the European average and have fallen behind, as the margins observatory shows,” he points out. Zarapuz also points out the possibility of unstopping contributions to increase collection.

Salvador Guillermo, director of studies and economics at Foment del Treball, points out that fraud does not appear in official statistics. “In Spain there is a more important underground economy than in other countries,” he maintains. Zarapuz also agrees that there is a part of the collection that is not produced by the aforementioned underground economy, but also warns that there are certain groups, such as some self-employed workers, who pay a fee regardless of their income. The union believes that contributions should be based on the money earned.

When Eurostat data is analyzed, it is found that in all areas there is room for growth compared to Europe. Both direct taxes (such as personal income tax or companies) and indirect taxes (essentially VAT) are collected less than in the EU.

The latest data from Eurostat show that the fiscal pressure in Spain in 2022 was 38.3% of GDP, compared to 41.9% in the EU. García highlights in his report that if this gap could be closed, the structural deficit would end, which Airef estimated at 3.5% last March.

In the period 2019-2022, fiscal pressure grew by 2.9 points of GDP in Spain, while in the EU it remained stable, with a slight increase of two tenths. From 2021 to 2022 the pressure was reduced by three tenths due to GDP growth (everything that occurs in a year).

The growth in collection came from the income tax side, which increased 1.9 points, especially as a consequence of the non-updating of the rate and personal deductions in personal income tax. Consumption taxes also contributed half a point to the growth in revenue. This evolution has reduced the differential in Spanish tax pressure with respect to the (weighted) average of the European Union, reaching -3.6 points with respect to the eurozone.