November 28, 2020

The IMF supports the government’s tax increase but asks that some figures be delayed to recovery



The International Monetary Fund has given its approval to the tax increases included in the 2021 General Budgets project, widely contested by the parties of the right (PP, Vox and Ciudadanos) and censored in some aspects by partners such as the PNV, but it calls for “measures that may have a disproportionate effect on the low-income population, such as expanding VAT collection or increasing environmental taxes, should wait until the recovery is firm and be accompanied by a effective targeted spending to protect the most vulnerable. ”

The multilateral body makes these considerations in a report released this Friday where it recalls that “the relationship between taxes and GDP in Spain is relatively low compared to its regional counterparts”, when it highlights that “sustainable structural measures will be crucial to rebuild fiscal buffers while supporting more inclusion and innovation actions. ”

“In line with the pre-COVID fiscal strategy, the authorities have taken measures to increase the tax collection bases and the progressivity of the tax system that will bring Spain’s income closer to the EU average -41% of GDP- where the revenue-to-GDP ratio in 2019 was 6 points below the European average. The new measures are expected to produce revenue increases of more than 6,000 million euros “, includes the section of the document prepared by Pablo Romero, Executive Director for Spain of the IMF.

Taking into account the hole that still separates Spain from the rest of the European countries in tax collection, the fund points out that “there is room for structural improvement, especially by strengthening VAT collection, increasing special taxes and levies. environmental issues, and the reduction of inefficiencies in the tax system “.

Although the body headed by Kristalina Georgieva draws attention to the impact of fiscal measures on the low-income population, “such as the expansion of VAT collection or the increase in environmental taxes”, which should be delayed “until the recovery is firm and is accompanied by effective spending aimed at protecting the most vulnerable “, he also points out that the Government must begin in advance to do” a basic work to ensure the effective and timely application of these policies. ”

The IMF is pointing to higher taxes in an environment where “the damaging effects of the current crisis are expected to further increase the country’s fiscal vulnerability. The projected position would leave little fiscal room to deal with future adverse shocks, especially in a environment of higher interest rates, putting the sustainability of public debt at substantial risk. ”

“To rebuild fiscal reserves in the medium term, the staff recommends resuming gradual consolidation once the economy is in a situation of sustained growth strength with falling unemployment. Under current assumptions, these conditions could occur at the earliest. from 2022, “says the fund.

The IMF’s calculations go through an annual consolidation of the structural primary deficit of 0.5% of GDP, which “could reverse the upward trend, put the debt ratio on a downward trajectory as of 2023 and achieve a close structural fiscal position to equilibrium within a decade according to current estimates. ”

Pension reform

On the issue of pensions, the IMF proposes “a package of sustainable reforms to balance the sustainability of pensions and social acceptance”, since it is necessary “a long-term commitment to contain the pressure on pension spending derived from the aging of the population “when the COVID-19 crisis” will push back the finances of the pension system even further. ” Among the measures pointed out by the multilateral organization are “encouraging the prolongation of working life, increasing income without raising the already high contribution rates and promoting complementary savings.”

In this sense, the Government has already implemented some of the recommendations. The Ministry of Inclusion, Social Security and Migrations has as a roadmap to promote employment pension plans for “extend the coverage of collective pension plans to more than half of the employed population”, which would mean “multiplying by three or four the penetration rate of these plans” complementary to the public pension.

Single contract and Austrian backpack

Regarding the labor market, the IMF maintains that “the conclusion of the simulation is that the mixed proposal of a single contract and an ‘Austrian fund’ has the potential to significantly reduce the segmentation of the labor market in Spain, without increasing the cost of dismissal for companies or reduce employment protection for workers. ” That is, the multilateral body would be proposing the establishment of the single contract and the Austrian backpack, a system of individual capitalization accounts in which the worker accumulates funds in a kind of piggy bank in the face of a possible dismissal or for his future retirement as models to continue improving the labor market.

The Austrian backpack has been one of the most controversial work proposals created in recent months. The governor of Bank of Spain, Pablo Hernández de Cos, asked in Congress that part of the European funds be dedicated to cover the initial or transition costs of the Austrian backpack. The implementation of this system has always been surrounded by controversy and has been one of the flags of the political formations of the right, especially Citizens, and by the more liberal part of the coalition government, with the Vice President of Economic Affairs, Nadia Calviño, as its main defender within the Executive chaired by Pedro Sánchez.

In fact, the issue of the Austrian backpack has been one of the points of friction between Calviño and the Minister of Labor, Yolanda Díaz, who has been publicly against its approval when the vice president’s department included it in its ‘Agenda for Change’ during the last legislature.

Housing problems

Another aspect that the IMF has touched on are housing problems. The fund highlights in its report that “the affordability of rents deteriorated after the global financial crisis. Spain is one of the EU countries with the highest proportion of overburdened tenants, that is, tenants who spend more than 40% of your income in rentals or, more generally, in total housing expenses. ”

To avoid this problem, the fund proposes “that” the efforts of the different levels of government focus on addressing supply constraints, since, according to some estimates, the elasticity of housing supply is relatively low in Spain when while fast access to rental assistance is guaranteed for those most in need “.

Other measures proposed by the IMF are “to facilitate and simplify the regulation of land use; accelerate the requalification processes, especially for the construction of affordable housing; increase the stock of social rental housing, targeting it mainly to low-income people; improve the efficiency of tenant permitting process systems, and ensure good public transportation infrastructure between fast-growing cities and areas with more affordable housing. ”

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