The Government postpones the complete tax reform due to doubts about the economy | Economy

The Minister of Finance, María Jesús Montero, was very clear when the experts’ report on tax reform was presented at the beginning of March: with the war in Ukraine and the price crisis, it was not the time to do it. Four months later, despite the fact that the deadlines to comply with the tax reform committed to Brussels are already running, the situation has worsened. Inflation gallops at 10% and there is even talk of the risk of a recession in Europe that could drag down the Spanish economy. So the Government has decided to postpone it for the next legislature. Of course: it does not rule out some specific measure of green taxation.

The structural deficit of the Administrations is around 4% of GDP, according to calculations by the Bank of Spain and the Tax Authority. It is a hole of nearly 50,000 million euros, the equivalent of half of what is collected by personal income tax. And Spain has promised Brussels to approve a tax reform based on the March experts’ report. This should help correct the red numbers, it must be in force by March 31 of next year and is part of the milestones that Spain has to achieve in exchange for the almost 7,000 million of the fifth disbursement of European funds.

That means that the reform should already have been published in a public hearing to get it out as a bill given the required deadlines. It should be remembered that new figures cannot be created in the Budgets and that a decree-law should only be used for cases of urgency or necessity. In this sense, Treasury sources say that now the priority is to lower inflation and that the measures will be applied progressively and not in a single regulatory text. Not everything is renounced and some measure of green taxation is contemplated, they affirm.

The mandate given to the experts was that of a “structural reform” with the aim of bringing Spanish collections closer to the European average. And various government sources point out that in the current situation this is going to park. To comply with the EU, it should be enough to take some surgical measures, they explain. The example would be the tax on the extraordinary profit of energy companies, in the image of the one approved in Italy: a surcharge of 10% that will be raised to 25% and that is applied to electricity, gas and oil companies from the VAT invoicing. When the Italian Government approved it, it calculated that it would enter some 4,000 million. Thus, the Spanish Executive would fulfill one of the objectives set for Brussels to make companies pay more taxes.

These sources stress that it is important to calibrate the moment and avoid the procyclicality that a tax increase would now entail. They recall that the experts’ document itself explains that it is essential to address them gradually and making sure that the recovery has been consolidated. And they point out that the European recommendation is that measures be taken to achieve budget balance “when the economy allows it”.

In addition, they point out that the increases in energy prices would already be achieving what was intended with the green reform: lower consumption. And the collection advances turbopropelled by the recovery after the covid, the strong creation of employment and inflation. Between January and May, tax revenues soared 19% above last year. In any case, if important resources had to be obtained quickly, VAT and personal income tax would be the figures that should be used. In this line, the experts pointed to raising the reduced rate of 10% in VAT and removing or modifying some reductions and exemptions from personal income tax.

A kick forward has already been made with a part of the reform that had to be ready by June 30. Reform four of component 28 committed to Brussels says that measures will be taken that contribute to the ecological transition. And these include “taxes or payments related to mobility such as road tolls and registration and circulation taxes.” Nothing has been done about this and the tolls have even been postponed for the next legislature. It also has to include “the review of subsidies for fossil fuels”. In this, just the opposite is being done with the help of the 20 cents.

The political calendar has also been decisive so that the tax reform of the experts has been frozen until the next legislature: the long electoral race has already begun that will lead to the regional and local elections in mid-2023 and the legislative ones in principle scheduled for the end of that same year. In such a field, taxes are an explosive matter.

However, component 28 indicates that by March 31, 2023, “the changes to the tax system based on the recommendations of the experts” must be completed. With nearly 800 pages, the white book is a menu to elaborate a reform from which the Treasury had to choose. In this it is recommended to increase green taxation by up to 15,000 million, including increases in fuels. An increase in reduced VAT rates. The elimination or transformation of benefits in personal income tax such as paternity, joint taxation or housing rental. Eliminate taxation by modules. The harmonization of regional taxes on assets and successions. And in societies, a simplification is requested that promotes a larger size of companies and measures to reinforce digital and international taxation. This component concludes: “Given that the ratio of income to GDP is lower in Spain, there is room to increase collection and promote the sustainability of public finances.” The European Commission has always recalled that in the event of not fully complying with a reform, a partial payment of the funds is always possible or that the total disbursement be suspended until the measure has been completed if it is considered very important.

No collection for the rise to high rents

The Government had already taken measures to try to improve collection in the 2021 Budgets. In Personal Income Tax, it approved a rise of two points for labor income above 300,000 euros, and three for capital income above 200,000. According to Treasury estimates, this measure only affected 0.17% of taxpayers and would allow some 580 million euros to be collected in 2022. However, until May it has only managed to enter about 13 million euros, according to the tax collection report. the Tax Agency. This implies that at the end of the year the projection would be about 50 million. Apparently many high incomes have managed to escape using ways like partnerships. For the so-called Google rate and the financial rate, only an additional 139 and 146 million have been obtained so far this year, respectively. These figures are also far from what was initially expected.

Instead, measures to lower electricity bills are having a much greater impact. Between January and May, the Treasury has stopped collecting 3,695 million due to the reduction in the VAT rate, the reduction of the special tax on electricity and the abolition of the tax on the value of energy. If the beginning of these measures is taken, back in the summer of last year, the cost amounts to 5,300 million euros. And now VAT has been lowered even further to 5%. In short, in net, the Government is lowering taxes in order to try to mitigate the effects of price increases.