October 25, 2020

Raising the tax burden to the EU level would destroy two million jobs, according to the IEE


MADRID

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One of the coalition government’s medium-term objectives, also included in the conclusions document of the Reconstruction Commission, is to close the collection gap that Spain is dragging against the European average. According to the latest Eurostat data, prior to the pandemic, while our country taxes 35.4% of Gross Domestic Product (GDP), the European Union collects 41.2%: six points of GDP difference that are almost equivalent to 70,000 million euros. The Institute of Economic Studies (IEE) calculates that closing the collection gap with Europe would lead to subtracting up to ten points of GDP to activity and a destruction of “Two million jobs”, according to the semi-annual economic situation report «Crisis of COVID-19 in the Spanish economy: recovery is not possible without business confidence» presented yesterday.

“The only way to sustainably increase our tax collection is to prioritize our income convergence and reduce our shadow economy, which is materially impossible if we further raise our taxes. It has been estimated that For every percentage point that taxes increase, a contraction of activity and employment of almost two percentage points can occur in the medium term.», Affects the document.

The IEE, CEOE’s research service, recommends the Executive not to raise taxes at this time, due to the severity of the economic crisis. The organism predicts that the activity will fall 17.5% in the second quarter, to rebound 14.5% in the third and 2.3% in the fourth. Despite this, the agency collects that the economy will remain more than five points of GDP from its pre-crisis level and estimates that this year activity will sink 11% and rebound 5.5% in 2021, in a scenario in that the possible effect of the 140,000 million that Spain will receive from the EU Reconstruction Fund has not been incorporated. Of course, these forecasts are maintained in a hypothesis in which there is no strong rebound or return to the confinement of April.

Tax hikes

The Government maintains its intention to set a minimum rate in Companies for large companies, reduce the exemption from taxation of foreign profits (1,776 million of income provided by the Executive), in addition to raising personal income tax to income above 130,000 euros (about 660 million more in two years). Despite this, including the fee for digital services and financial transactions (the so-called fees Google and Tobin, which would raise respectively 968 and 850 million) or the tax increase on diesel (which adds a little more than 600 million) the measures that the Executive plans add almost 5,000 millionTherefore, closing the collection gap against the European Union average would require more tax increases.

For the second quarter, the agency forecasts that unemployment will climb from 14.4% from the first to 19%: five more points in just three months. “Most countries are temporarily lowering taxes like Germany, France, UK or Italy», Considered yesterday the president of the IEE, Íñigo Fernández de Mesa, who recommended extending the guarantee measures (which have already had a positive impact of 3.2 points of GDP on growth), ERTE (another point) and greater flexibility to pay or delay payment of taxes.

Spending efficiency

The general director of the IEE, Gregorio Izquierdo, recalls that the great gap in tax collection with Europe is in the Personal Income Tax, where the “greatest incentive is the exempt minimum”, since in neighboring countries lower incomes pay more tax than the Rent than in Spain. For example, recently Germany has announced that the exempt minimum will climb from 9,408 euros per year to 9,697 next year. In Spain, the threshold is at 14,000 euros.

The IEE calculates that the public deficit will soar this year to 11.5% of GDP to decrease to 7.5% in 2021. As for public debt, the institution predicts that it will exceed the level of 120% of GDP. “The road to budgetary consolidation is in the efficiency of spending and not in tax increases”, the institution abounds, adding that “if in Spain the efficiency of public spending were to be similar to that of the OECD average , we could provide the same current public services with 14% less spending, and the savings could be greater if we homologated ourselves to the best practices, “says the IEE.

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