Converging with the EU in social contributions would reduce wages by 7%

Converging with Europe is not always a good move.

Oliver Thansan
Oliver Thansan
19 November 2023 Sunday 10:29
4 Reads
Converging with the EU in social contributions would reduce wages by 7%

Converging with Europe is not always a good move. If in Spain the collection of social contributions paid by workers equaled that of the European Union, salaries would fall by more than 7.3%. These are calculations by the Fundació d'Estudis d'Economia Aplicada (Fedea) based on the latest figures on fiscal pressure published by Eurostat.

Miguel Ángel García, professor at the Rey Juan Carlos University (URJC) and Fedea researcher, explains that a drop in salaries is not being considered, but only the consequences that convergence with the EU would have. "In addition, in this model, the social contributions paid by companies should be lowered, because more is collected than in Europe", reflects García.

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

Luis Zarapuz, coordinator of the economic cabinet of CC.OO., points out that in order to reduce the gap in the contribution of workers' social contributions, the division between business profits and wages could be changed with the aim of them gaining weight. "Spain has low wages which, in addition, are below the European average and which have fallen behind, as the margin observatory shows", he points out. Zarapuz also points to the possibility of removing the limit on contributions to increase revenue.

Salvador Guillermo, director of studies and economics at Foment del Treball, explains that fraud does not appear in the 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 he also warns that there are certain groups, such as some freelancers, who pay a fee regardless of what their income is. The union believes that contributions should be made based on the money earned.

When Eurostat data is analysed, it can be seen that in all areas there is room for growth as far as Europe is concerned. Both in the case of direct taxes (such as personal income tax or companies) and indirect taxes (essentially VAT), less is collected 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% on average in the EU. García highlights in the report that, if the gap could be closed, the structural deficit would end, which Airef put at 3.5% in March.

In the 2019-2022 period, fiscal pressure grew in Spain by 2.9 points of GDP, while in the EU it remained stable, with a slight advance 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 took place from the side of income tax, which increased by 1.9 points, mainly as a result of the non-updation of the rate and personal deductions in the IRPF. Consumption taxes also contributed half a point to revenue growth. The evolution has reduced the differential of the Spanish fiscal pressure with regard to the (weighted) average of the European Union, to the point of placing it at -3.6 points with the Eurozone.