Should taxes be raised in Spain? For the OECD (Organization for Economic Cooperation and Development), yes, since it is a necessary measure to carry out a necessary process of settling accounts, due to the excessively high deficit and debt.
“To address future spending pressures, fiscal consolidation should be based on mobilizing additional revenues by gradually broadening the value added tax (VAT) base, increasing environmentally related taxes and “improving spending efficiency,” reads the forecast study presented this Thursday.
However, the context invites reflection. The OECD call comes just when the Tax Agency is entering more than ever. In fact, tax collection in Spain has experienced a significant increase in recent years. The Treasury brought 271,935 million euros into its coffers in 2023, which represents the best tax harvest in history, surpassing – also thanks to the effect of inflation – even that obtained in 2022.
Likewise, all this happens when taxes have been increasing for years. According to the Institute of Economic Studies (IEE), the fiscal pressure in Spain is around 39% of GDP in 2023, which in itself represents a historical record. Furthermore, this figure has increased by 2.9 points of GDP since the pandemic. In detail, if we look at the general VAT rate in Spain it is 21%: higher than that of countries such as Germany, France or the United Kingdom. So the initial question is legitimate. Do we really have 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. Regarding VAT, in reality the OECD indicates that the tax base should be expanded, since there are still too many activities or products that are exempt or have super-reduced rates. If we then look at the debt (114% of GDP), Spain should indeed 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 standards required by the EU, but would also rebalance accounts that are currently out of balance. “The ratio of public debt to GDP is high, and spending is heavily weighted towards pensions, to the detriment of items that promote growth. In addition, an increase in spending 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 (when in Europe it is around 10%). Not to mention that the renunciation of the budgets for this year and the extension of measures to alleviate 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 required by Brussels. “The aging of the population, slow growth in productivity and low investment hamper Spain's growth potential,” warns the OECD.
Josep Comajuncosa, professor at the Department of Economics, Finance and Accounting at Esade, highlights that “the problem is that the EU has reintroduced the fiscal rules, which were suspended since Covid and are now stricter. The evolution of public debt must have a downward trend.”
And the OECD – Comajuncosa recalls –, among the various options, considers that the social costs of reducing public spending, such as pensions, “would be too high.” But we must also consider that an increase in social contributions was announced. “And this is a way to raise taxes,” she points out.
