This is the fiscal reality in Spain

Photo of author

By Jack Ferson

This is the tax reality in Spain

Of course, in the period 2019-2023, We are on the podium in European countries in increasing fiscal pressure. While the average of the union has lowered this pressure by 2.4 points, in Spain we have raised it by more than 5. This data does not even take into account the new tax increases approved during last year or the beginning of this one, so the The fact that we will find next year will be even more painful for our pockets.

Source: Carlos Arenas Laorga, with data from Eurostat

One might think that this collection, suffocating in certain income brackets (59.5% only in personal income tax and social contributions, without counting VAT or other taxes and 70.3% for marginal income on labor income for salaries equal to 167% the average income of the country) serves so that there are no queues at public healthcare. EITHER so that the education system is one of the best in the OECD according to PISA. Or perhaps so that there is a huge amount of social housing so that young people can emancipate themselves. Well, maybe all this isn’t working. But we can still think that, at least, we have the lowest unemployment rate in the OECD and the EU and that salaries rise a lot due to this pressure from the labor market. But we also don’t have the worst unemployment rate. So what? Are we perhaps converging in income with the European Union average? Well, not for years, and the tax pressure has increased a lot.

Source: Carlos Arenas Laorga

We Spaniards often find that a considerable part of our money goes to paying taxes. The video of two people playing cards has gone viral in which one is a citizen and the other represents the state and charges them for everythinguntil the citizen decides to stop working and then the state has to pay him or her. As harsh as it sounds, that’s how it is. And the incentive is not the most appropriate to encourage work, effort, business creation, investment, etc.

Let’s imagine the economy as a racing car. For it to achieve good performance, it needs fuel (and good fuel), adequate maintenance and, of course, that the driver does not constantly step on the brake or, at least, drives well. In this context, taxes would be that brakewhich can prevent our great car from moving forward. What’s more, what worries me most is that the driver is the state and not each of us.

Although it is true that In Spain we have had very important tax increases in recent years, We have not always been at these levels. What’s more, Spain has traditionally been one of the countries with the lowest taxes. I am not a believer that every past era was better, the best is the one in which each of us lives. But the education system was of higher quality before, the unemployment rate was barely existing and housing was very affordable, to give some examples. Be careful, I’m not saying that we haven’t improved in many ways. But of course economic growth is not proportional to tax growth. I have looked at a comprehensive history of tax collection in the OECD member countries and Spain, which I summarize in a graph. It surprised me.

Source: Carlos Arenas Laorga, with data from the OECD

For the average taxpayerfiscal reality is like a second mortgage. Although our rulers have ensured that we do not feel it as such. That is why it is worth remembering platforms that tell us the day of the tax release, for example. According to data from 2024, a Spanish worker dedicates more than half of his gross annual salary to paying taxes and contributions. This implies that, until July 30, the income generated by their work is destined exclusively to the state. And although taxes allow essential services to be financed, the debate centers on whether the current level is sustainable and fair. Above all,after seeing how Valencia, with the misfortune of DANA, they still do not receive aid. What’s more, in La Palma there are many families living in huts. But, in Lorca, more than 13 years after the earthquake, there is still aid to be delivered.

For example, in other European countries with a similar tax burden, such as Denmark or Sweden, citizens perceive an obvious return in the form of higher quality public services. In Spain, however, the level of satisfaction with these services is notably lower, fueling the perception that the fiscal effort does not always translate into palpable benefits. And I say effort and not pressure, because if the pressure in Spain is already high, the effort is even higher.. The fiscal effort (fiscal pressure calculated by the Gross Domestic Product per capita) has been 17.8 points higher than that of the European Union.

Source: Carlos Arenas Laorga

At least, social contributions are not taken from our current accountbut most of it is paid by the employer and it doesn’t hurt. By the way, the employers have proposed that the worker be the one to pay it and the government refuses because the workers would see the enormous amount that the employer is paying for them or, seen another way, the enormous amount that is going out of their salary. in social contributions. More than a third of your gross salary!

Source: Carlos Arenas Laorga

Companies, especially SMEs represent another segment hit by taxation. While in other countries tax policies seek to stimulate investment and innovation, in Spain many companies suffer taxes as a barrier to growth. According to the Bank of Spain, The average tax burden for a company exceeds 25% of its profitswithout taking into account additional contributions to the Social Security system.

An excessive tax system not only affects economic growth, but also encourages tax evasion. We already know the Laffer curve. Spain occupies one of the first places in the shadow economy within Europe, as is logical. This creates a vicious circle: the state raises taxes to cover the deficit caused by evasion, which in turn encourages more activities outside the system.

The debate on taxation in Spain needs a broader approach. It’s not just about reducing taxes, but about making them more efficient. This involves simplifying the tax system, reducing tax fraud and ensuring that every euro collected is used effectively. Income and expense audit? Really, not just the information from the IGAE. Very good, but it only informs. The true success of a tax system is not measured by how much it collects, but by how it contributes to the well-being and progress of its citizens.

What do you think? Do you think Spain is on the right path or do we need an urgent change in our fiscal policy?

Leave a Comment