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The Tax Authority indicates that the Government will lower taxes this year by 2,300 million | Economy

The president of Airef, Cristina Herrero, in a file image.
The president of Airef, Cristina Herrero, in a file image.EFE

Governments are always more comfortable repeating slogans. One of the most hackneyed by the Executive is that it is necessary to increase the fiscal pressure to finance public services and reduce the large State deficit. However, in practice this has translated into few steps to make it a reality. And this year, with the reductions in the taxation of electricity, in the net there will even be a reduction in taxes worth 2,300 million, according to calculations by the Independent Authority for Fiscal Responsibility (Airef) published this Thursday in its report on budgets.

The 2022 Budgets included measures to raise income by some 3,165 million, including the increase in personal income tax for high incomes, the taxation of dividends from abroad, the increase in rates on sugary drinks, the google ratethe A Tobin and the increase in rates on insurance premiums. But the lowering of electricity taxes has turned these numbers upside down. Lowering the VAT rate for six months on the electricity bill, the special one and the one that taxes production will mean some 5,500 million that will stop entering the State coffers. These figures take into account that the price of electricity has skyrocketed and, therefore, the collection for these taxes. The sales will be in force until the middle of the year. And there is a possibility that they could be extended until the closure if the tensions continue. The hope of the Executive is that the cap on gas in the electricity market can reduce the electricity bill by half. Its approval is pending the approval of Brussels in the coming weeks.

In any case, inflation causes the public coffers to enter more, especially in VAT. The Tax Authority calculates that for each point of inflation, some 2,000 million more are collected. Perhaps the example is the tax on electricity production, which the Government has abolished in the first half of the year but which, if electricity prices are maintained, would collect in a single quarter what it used to earn in a year: about 1,000 million. The Tax Authority does not specify how much revenue would be lost by updating the IRPF rate with inflation as requested by the PP because it is not something approved.

1,500 million in pensions for each point of the IPC

Having said this, the organization highlights that in the medium term this inflation due to energy costs and bottlenecks does not imply an improvement in public accounts. In the first place, because purchasing power and growth are deteriorating and, consequently, public income. When there is inflation, the costs of the State rise: for each point that it increases, the interest on the debt will climb by about 500 million, mainly due to the Treasury bonds linked to inflation. And the costs of the contracts and purchases of the Administration will rise. It could even pick up spending on unemployment. In 2023, the revaluation of pensions with the CPI will reach 1,500 million for each point of inflation if the approved reform is complied with. In other words, it would be what was eaten for what was served and the deficit would rather increase slightly.

Only that the Government has taken measures to mitigate price increases, worsening the hole in public accounts: in about 4,000 million for the aid package to refuel and for affected sectors. And another 5,500 for tax cuts in light. However, these latest reductions would actually be partly offset by the additional collection they may have in the second half of the year if they are not extended.

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Despite the aid, the drop in spending due to covid and the good evolution of employment and income will cause the public deficit to drop a lot in 2022: by 2.7 points to 4.2% of GDP. All in all, it is a high figure in a context in which the invasion of Ukraine can accelerate the withdrawal of stimuli and deteriorate financing conditions, warns Airef. That is why he asks that, while short-term measures are taken, a gradual fiscal consolidation compatible with growth is planned. And it recommends that progress be made in the next Stability Program that the Government will send to Brussels at the end of April.

The institution has revised down its growth forecast for this year by two points to 4.3%, still a robust figure. And it places average inflation at 6.2%. Despite this worsening, nominal GDP, which adds inflation and is more relevant for the evolution of public accounts, will be 8%.

The downward revision is attributed to three reasons: European funds will have a smaller effect on activity in this new scenario due to higher costs and less investment traction. Its impact multiplier is trimmed from 1.2 to 0.9. And consequently the funds spent in 2022 will give a boost of 1.8% of GDP instead of the 2.5% forecast in October. In addition, Airef calculates that for a 15% rise in energy prices, GDP will fall by 0.4 percentage points this year and the next. It also estimates that 0.4 points may be lost due to trade exposure to Russia, including the indirect impact through partners, and another 0.2 due to bottlenecks.

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