The Tax Burden of Spain: Bad News for the Treasury, Good News for Taxpayers

The Tax Burden of Spain: Bad News for the Treasury, Good News for Taxpayers

Among many political parties, it is fashionable to incorporate what the State must “spend like in Europe” or “equalize at European levels” to achieve the strengthening of the Welfare State.

But free-spending does not exist … if it is in the present it is in charge of income, and if it is spent, even more, it is compromising future income, in other words, debt.

So let’s put data into these rhetorical phrases. Let’s define what the levels of public revenue in Europe are and what it would mean for Spain to approach those levels.

Europe and fiscal hell

To compare income levels between two states or economic environments, the ratio of public revenue to GDP is used to help us measure the budgetary pressure that a country is subject to.

In the case of the European Union, until 2010, the ratio was below 44%, and already in 2012, we have seen that it has exceeded those levels. In the last year registered, 2018, the ratio was 45.1%.

And in the case of Spain? What is the fourth economy of the Eurozone has a historical public revenue / GDP ratio below the European average. Specifically, it has managed to stay below 40% in these years. So we have a difference of 5-6 points of collection on GDP compared to the European reference.

It must be said that Europe is the economic environment with the greatest fiscal repression in the world. A consequence that comes from the construction of the so-called “Welfare States” from the Second World War that does not represent anything other than the confiscation extended to the private sector.

While Europe looks at the world under the label of “tax havens,” the world looks at Europe under the label of “tax hell. ” A fiscal hell with a population of almost 750 million euros and, as a result of a history of capital accumulation, enjoys relatively high incomes compared to the global average.

We are 57,000 million for the collection of Europe

When compared to the European average, the finance technicians’ union, Geetha, values ​​a quantified collection loss of 75,738 million euros. This amount is a consequence of moving from a ratio of 39.2% of public revenues over GDP to the European average (45.1%).

According to Gestha, there is a loss of 20,400 million euros in income and equity tax and 10,400 million in Social Contributions.

They also talk about the submerged economy. They point out that if it were reduced by 10 points, the collective impact would be 38,000 million euros. On this point, it is necessary to specify that Spain is right in the European average (17% of GDP), and with 10 points, we would get more than half of all the fraud.

Because our GDP is 1.2 billion euros, 17% would be equivalent to 204,372 million euros and ten points to 120,219 million. Of that amount, 38,000 million represents that after that economy emerged, a tax of 31% would apply. What is not clear is that once it has emerged, this extraordinary collection ceases to apply in the coming years because it is only applicable to one year.

Who should we press to get to collect the European average?

If we compare the tax collection of Spain against Europe, it is easy to conclude who and in what way we should tighten fiscally.

With the 2018 data, the European Union collects 13.4 GDP points in indirect taxes (VAT, specials, and others). On the other hand, Spain collects 11.7 points. In total, 1.7 points of GDP of the potential rise, and that would have a collective impact for all citizens in their consumption decisions.

As if that were not enough, we should tighten more indirect taxes — more collection in Corporate Tax and Personal Income Tax. In Europe, 13.2 GDP points are collected, and in Spain, 10.6 points under this concept. We have 2.6 points of GDP difference. Because we only have a difference of 0.2 points per Corporation Tax, the rest, 2.3 points of GDP, would crush the income of the middle class.

In Social Contributions, there is also a difference. In Europe, these revenues represent 13.3 points of GDP, and in Spain 12.4 points. That is, if the workers did not have enough with a potential rise of 2.3 points, we should now press almost another point.

Although we are sold that it would be “the rich” who would pay for that rise to European levels, it is not true. The tax pillage would be given to the worker on foot. Even Spain would be raising “too much” for income on capital (0.5 points of GDP vs. 0.2%). The State should cut taxes such as Patrimony and Inheritance and Donations.

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