The cataract of tax revenue due to inflation enables the reduction of the public deficit to 6.76% of GDP

bruno perezMadrid Updated: 03/31/2022 11:44 a.m.
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The Minister of Finance, María Jesús Montero, presented this Thursday the greatest reduction in the public deficit in the history of the Spanish budget since records began. The red numbers of the Spanish Public Administrations were reduced last year from 10.27% of GDP at the end of 2020 to 6.87%, a cut of more than 31,000 million euros or 28% if the reference is preferred percentage. The Government, which had initially set itself the goal of leaving the deficit at 7.7% of GDP in 2021, had already cured its health and had sent to Brussels in the update of its budget plans a goal of reducing the deficit that he aspired to leave it at 8.4%, well above the 7.3% in which the consensus of analysts moved.

The favorable performance of tax collection has been key to this result. The Minister of Finance has reported this Thursday that income from taxes increased by 21.2% during the past year, despite the package of tax reductions enabled by the Government to lower the price of the electricity bill, with the VAT reduction from 21% to 10%, the reduction to the minimum of the rate of the Special Tax on Electricity and the temporary suspension of the application of the Tax on the Value of Production of Electric Energy, a 'pack' in which nearly 2,000 million of public income.

Personal income tax revenues increased by 7.5%, reaching a record figure of 94,546 million euros; those of the Corporation Tax, did so by 68%, up to 26,627 million, despite the fact that the tax increases approved by the Government will not be noticed until this year 2022; and something similar happened with VAT (+14.5%) and special taxes (+5%). Montero attributed this avalanche of tax revenues to the success of the economic policy measures applied by the Executive, which according to his account would have made it possible to preserve employment, encourage consumption and accelerate economic recovery.

However, the figures provided by the Government do not support this story. Despite the fact that it foresaw much more dynamic economic growth than it has finally resulted in, 6.5% compared to the 5.1% reported by the INE last week, the Executive presented in September within its Budget project for 2022 an advance closing of the income account that was 8,500 million euros below what has finally been obtained.

What changed in the last quarter of the year for that forecast to fall so short? It was not the behavior of the economy, which grew less than what the Government expected in the last quarter. All signs point to inflation. In just three months, the index that measures the evolution of prices went from 4% to 6.5% and these have a direct impact, above all, on income from VAT, special taxes and also in part on Corporate Tax. Business sources admitted this week that the brutal increase in income from Corporation Tax is explained by the improvement in business profits between the second and third quarters of the year, when the recovery was more vigorous and with an added boost on the side of the update of the rates that had been reduced during the pandemic, which was reflected in the installment payment of October.

The sharp reduction in the deficit during the past year approximates the fulfillment of the path of fiscal consolidation designed by the Government, whose next milestone indicates that in 2022 it should reach 5%. The Minister of Finance, María Jesús Montero, also stressed this Thursday that the fiscal margin achieved last year has allowed the adoption of the package of measures approved this week to cushion the impact of the crisis and whose budgetary cost has been estimated at around 6,000 millions of euros. from

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