Employment and inflation drive another record year for personal income tax despite slowing GDP

The Spanish economy has been showing symptoms of cooling in recent months as its main trading partners, the large economies of the Eurozone, have caught the flu. Indicators such as retail trade or consumer confidence have weakened in October, the mortgage firm has plummeted 29.6% in September and, in the middle of the rise in rates, it has already accumulated eight months of decline – the same number of months it has been falling industry activity -, while the advance of the National Accounts data recently confirmed that exports (-4%) and investment (-0.8%) contracted between July and September in relation to the previous quarter.

Despite this more adverse situation, the resistance that employment has been showing and the collateral effect of inflation through salaries have triggered State collection via Income Tax by 9.6% year-on-year until October. Without the tax cuts for the lowest incomes, the increase would have exceeded 13%. In the first ten months of the year, the public coffers have received 101,586 million through personal income tax, when in the whole of last year they collected 109,485 million for this concept, a record figure that this year could even be surpassed thanks to the resilience of the labor market.

Employment set a record in Spain in the third quarter of the year when Social Security reached 21.26 million contributors. This, despite the fact that the end of a longer than usual tourist season – it has been extended practically until October due to high temperatures – translated, at the same time, into an increase of 92,700 unemployed between June and September, according to the latest image . Active Population Survey (EPA).

Income from withholdings from work and economic activities, which make up the bulk of the tax and are the ones that contribute the most to the increase in total collection, have increased by 10.9% so far this year, according to the Tax Agency (AEAT). ) in its latest monthly collection report, which was made public this week.

Although, its progress has slowed as the final stretch of the year approached as job creation slowed, salary increases moderated – from 6% in the first quarter to just under 5% in the third – and due to the fact that the rate reduction for the lowest incomes only began to be effective in February. This trend can be seen, according to the AEAT, both in the case of large companies and SMEs.

Regarding the public sector, where income from withholdings increases between January and October by 13%, the Agency points out that “the situation will change noticeably in the next two months.” In November, when the full effects of this year’s additional salary increase are felt, and in December, when compared to last year’s rebound also caused by the salary update, which was more intense then.

19% since February. All of the above suggests this record increase in tax collection for which the Personal Income Tax will not be the only one responsible.

A structural expenditure of 12,000 million

With all national and international organizations, they warn that in the shorter term future a less optimistic scenario may appear, as activity slows down further. The European Commission has warned Spain that it will have to face a “very difficult” fiscal situation in 2024, when fiscal rules are expected to be recovered at the European level, because the deficit will remain above 3%. In the coming years, the debt will remain “quite high”, around 106.5% of GDP. In its latest edition of the ‘Economic Information Notebooks’ Funcas warns that the growth of total public income will slow down in 2024 from 6.7% to 5.8%.

This, despite the fact that at the end of the year the tax cuts on energy are eliminated (those on food remain until June), despite the boost in revenue from temporary taxes on the financial and energy sectors and the great fortunes – which PSOE and Sumar opted to strengthen their government agreement to readapt and maintain them once their current application period expires and despite the reduction in compensation for parent-subsidiary losses. Together these measures will contribute around 6 billion euros in 2024.

At the same time and as Desiderio Romero-Jordán explains in his article, public spending will contain its growth from 5 to 3.8% as more than 9.1 billion euros in personal and sectoral aid and fuel subsidies expire. However, the revaluation of salaries and public pensions will increase structural spending by around 12,000 million euros in 2024, which the new government will face in the year of the return to fiscal rules,” points out the Funcas researcher.