Tax revenue grows more than ever and shatters records |  Economy

Tax revenue grows more than ever and shatters records | Economy

Dark clouds are gathering on the horizon and the situation is wearing down, but the Spanish economy continues to show signs of resistance. The latest GDP data point to higher growth than expected this year, employment is holding up and tax revenues are on track to smash all records: collection reached 239,789 million euros up to November, the highest figure ever recorded and only a pinch – about 4,200 million – of the budgeted figure for the entire year, which had already been revised upwards. The most spectacular results are in personal income tax, which has already far exceeded the barrier of 100,000 million, something that had never happened before, and in VAT, which is close to 80,000 million for the first time, according to the latest report from the Tax Agency, published this Friday. As a whole, tax revenues grow at the highest rate ever, 16.9%, even above the boom years real estate, and are headed towards a year-end that will be much higher than estimated by the Government.

The Treasury remained “prudent”, in the words of the head of the department, María Jesús Montero, in the collection forecasts that were included in the General State Budget for 2022. He estimated that the collection would rise by around 20,000 million this year compared to the previous year. , but later he admitted that the increase would be about 30,000 million – and sent an alternative table of income and expenses to Brussels. This figure would already mean the largest increase in the historical series, which began in 1995. But the fact is that, until November, the public coffers had already exceeded that mark and had 32.919 million more. Not even before the bubble burst, in the early 2000s, did such increases occur, although then the weight of corporate tax, doped by construction, was much higher.

The strength of the labor market and wage increases, especially in pensions and civil servants’ salaries, as well as the strong increase in corporate profits, are the main causes of the increase, in addition to the rise in prices. Inflation, whose average for the year is expected to be slightly below 8.5%, has become one of the great puzzles of the Government, because it increases costs and reduces disposable income, but at the same time breathes air into tax collection .

How can it be that a phenomenon that hits consumption and bites GDP at the same time benefits public coffers? The answer is simple if you think of inflation as a silent tax. If everything is more expensive, the income provided by the taxes paid on those goods and services is also proportionally higher. The same goes for salaries and pensions: if these increase, withholdings also increase with them and there may even be jumps to higher rates in personal income tax.

The same Government recognizes that the increase in prices is one of those responsible for the record collection. In fact, an internal document from the Ministry of Finance calculated that, until August, one in four euros of increase in income, close to 25%, was due to inflation. The Independent Authority for Fiscal Responsibility (Airef) raises this percentage to 50%, and to 75% for the next one. In other words: of everything that is entered in excess with respect to 2021, only half would be explained by reasons other than inflation. The Bank of Spain also believes that the increase in the cost of living will have a greater impact on tax collection.

Given these differences in the calculations, the Government defends that part of the increase in collection is due to a notable outcrop of the underground economy as a result of the pandemic, thanks to greater card payments or the need to have a regular status of work to access benefits and public aid. The Tax Agency highlights among the factors that have contributed the most to the record collection up to November the growth of VAT and withholdings from work. To them are added “the good results” in the annual declarations of personal income tax and companies, and “the favorable evolution of business profits”.

Until November, personal income tax income grew by 16%, reaching 102,590 million. In corporate tax, the increase —up to 28,633 million— is explained by the rise in business profits “both in 2022 (it is estimated that 18.8% up to September) and in 2021 (35.8% compared to the decrease of 28.7% in 2020)”, says the Tax Agency. This improvement in profits has boosted installment payments by 19%, with improvements especially in consolidated groups.

In the case of VAT, income up to November increased by 16.2%, to 79,726 million due to the 21% increase in gross income “as a result of price increases,” says the Treasury and, “above all, the consumption expansion. And that, despite the tax reductions applied to electricity and gas supplies. Without them, the advance would have been 20.9%. The collection from special taxes also grew, by 2.4%, a result that would have been 11.8% if the income lost from the reduction in the rate of electricity tax is added.

anti-crisis measures

The Government has approved different measures throughout this year to mitigate the economic impact of the war in Ukraine and stop the rise in inflation. Among them is the reduction in the taxation of electricity and gas supplies, initiatives that according to the Tax Agency reduced the collection of 6,436 million until November. The abolition of the tax on the value of electricity production accounted for nearly half of this bill.

These aids, on the other hand, have contributed to the moderate rise in prices in November to 6.8%, compared to the 10% average for the euro zone. The Bank of Spain calculates that the government’s measures have allowed inflation to be reduced by two points. Facing this next year, the Executive will approve a new package, with a cost that, in principle, will be around 10,000 million. But uncertainty still reigns, at least until the conflict in Ukraine continues and commodity prices do not cool down across the board.

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