Spain is again among the developed economies where the tax burden grew the most in 2021
New message from the Organization for Economic Co-operation and Development (OECD), just a month after the government decided whether it will finally expand, modify or even scrap some of the measures of the anti-crisis plan with which it has sought to limit the impact of the crisis the rise in energy prices into the pockets of households and businesses.
In a report published this Wednesday, the institution assesses the measures taken by the various governments in these months, focusing on the measures related to taxes. And the conclusion is clear: widespread tax cuts favor families with more purchasing power than vulnerable families. For this reason, they advocate limiting measures such as applied VAT reductions or applying reduced or ‘zero’ rates of the tax to the maximum, betting on other types of measures “directly aimed at increasing the real income of the poorest households”. and to improve public services for these families.
However, the institution recognizes that the application of these direct controls is “often difficult, if not impossible” in practice, “particularly when the system of benefits and social transfers may not be efficient enough to ensure that households receive adequate compensation. for the impact of a VAT increase on the cost price of their consumption package.
As for the support measures specifically applied to limit the impact of the increase in energy prices, the OECD states that they are common in most countries. He believes they are also the most “visible, fast and easy to implement.” But keep in mind that they have some drawbacks in the medium and long term. “Indeed, they have a strong negative impact on revenues, are often ineffective and their benefits can disproportionately benefit large energy consumers, who are often the biggest earners,” they warn.
Similarly, it believes that the support provided by some countries also limits incentives for energy conservation and fossil fuel phasing out, “in addition to discouraging new infrastructure investments” needed for the energy transition.
The OECD thus joins other national and international organizations that have been warning for months about the impact of maintaining some protection measures against the crisis in general. In the Spanish case, one of the most talked about bonuses is the bonus of 20 cents per liter of fuel, which is expected to be changed by 2023 to limit it to certain professionals (transporters) and vulnerable families.
The college must also decide whether to maintain the general reduction of VAT on electricity, which has fallen from 21% to 5%, in addition to other measures such as the reduction to 0.5% of the electricity tax rate and the suspension of the tax at 7%. % to generation, with an economic incidence of over 10,000 million by government calculations.
This would run counter to OECD recommendations, whose report also criticizes the application of reduced or zero VAT to other types of essential goods and services. They believe that this measure, which governments generally apply with the excuse of raising more equity, will ultimately have the opposite effect to the desired effect by benefiting higher-income households more.
The explanation is simple. The OECD indicates, for example, that the reduced VAT on products such as some necessities or basic foodstuffs – which make up a large part of the budget of lower-income households – “results in an inefficient distribution tool”, as wealthier households tend to benefit in absolute terms. terms of more of the same, because they tend to consume more.
The institution feels the same way about preferential rates introduced to boost employment in some sectors such as tourism and hospitality, or tax cuts to boost culture.
In this sense, the institution insists on the need to “provide specific support” through other formulas, such as income tax or through transfers and distributions, “which are generally more effective measures in terms of equity”.
Spain is in any case the eleventh country of the 38 countries of the OECD where consumption taxes weigh less heavily on the total collected. Specifically, they accounted for 24.5% of total taxes collected in 2020, the latest year with data available. The data represents a decrease of 2.2 percentage points compared to 2019. This sizeable change is partly due to the impact of the Covid-19 pandemic.
If only VAT is included, it accounted for 17.1% of total tax revenue in Spain in 2020, compared to an average of 20.2% in the OECD.
The OECD also released its annual tax burden report this Wednesday, making Spain once again the leader of major economies in this concept that measures the relationship between taxes and social security contributions and the size of the economy.
Specifically, the tax burden in Spain increased by 1.7 percentage points to 38.4% last year, compared to the increase of half a percentage point for the group of more developed economies which represent an average weight of taxes on GDP of 34.1%.
According to the data collected in the report, Spain’s 2021 tax burden increase was the sixth largest of the 36 countries for which data were available, following the 3.4 percentage point increase recorded in Norway; of the 2.8 points in Chile; the 2.6 percentage points in Israel; 2.2 whole points in South Korea and 2 percentage points in Lithuania.
Since 2000, the tax burden in Spain has increased by 5.4 percentage points, from 33% to 38.4% in 2021, above the 1.2 percentage point increase observed on average in OECD economies, where the tax-to-GDP ratio in 2000 was 32.9%. compared to 34.1% in 2021.
On the other hand, using 2020 as a reference, the OECD estimates that the largest weight in Spain’s tax revenues corresponded to social security contributions, at 37.4%, compared to the OECD average of 26.6%, while taxes on income of individuals accounted for 23.7%, compared to an average of 24.1% in the organization.
In the case of corporate income tax, the weight of this tax in tax collection in Spain was 5.3%, compared to the OECD average of 9%, while the contribution of property taxes in Spain represented 6.7% of income, compared with the 5.7% of income. % on average in the OECD.
For its part, the VAT contribution was 17.1% in Spain, below the 20.2% of the international organization and the weight of other taxes on consumption was 9.6%, compared to 11.9% of the OECD average .
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
