Fiscal Pressure and Tax Revenue in Spain: An Independent Assessment
Spain’s tax intake reached a historic high in 2023, surpassing pre pandemic levels from five years earlier. A report from the Institute of Economic Studies shows the state collected up to 50 billion euros, a rise of 23.4 percent compared with 2019, while the gross domestic product grew by 11.5 percent in the same period. The center notes these figures illustrate a strong rise in fiscal pressure over recent years. Tax burden for 2022 is reported at 38.3 percent, narrowing the gap with the European Union where the average stands at 42.1 percent, according to Eurostat data.
The institute explains that this rise in fiscal pressure mainly comes through new taxes or reforms to existing ones, affecting both business taxation and personal saving and investment decisions. This observation was highlighted by Íñigo Fernández de Mesa, president of the Institute of Economic Studies, during the presentation of the Fiscal Competitiveness 2023 report. The tax stance in Spain is seen as a key factor slowing economic growth, with projected tax revenue growth in 2023 expected to outpace GDP, keeping total fiscal pressure near the 39 percent mark.
Another point raised is that the higher fiscal load has been achieved through the introduction of new taxes or revisions to existing taxes, which has significantly impacted corporate taxation and the saving and investment choices of economic agents, according to Fernández de Mesa.
When looking at contributions to total revenue, payroll and corporate income taxes together account for 32.4 percent. This is higher than the EU average of 25.8 percent. Within that 32.4 percent, social security contributions by employers make up 25.2 percent, versus 17.7 percent in the EU, while corporate income tax accounts for 7.2 percent, compared with 8.1 percent in Europe, as detailed by the IEE report.
From a macro perspective, corporate income tax represented 2.7 percent of Spain’s GDP, and employer social security contributions stood at 9.5 percent, totaling 12.2 percent of GDP. By comparison, the EU averages are 3.3 percent for corporate income tax and 7.1 percent for employer contributions. This places Spain’s fiscal burden on business at 1.8 percentage points above the European average in terms of GDP.
In the assessment of fiscal effort, the EU-28 baseline is used as 100. The IEE finds that Spain carries a fiscal effort about 17.8 percent higher than the EU level. This is notable, as the overall fiscal effort remains high relative to other OECD economies. Among major advanced economies, Spain shows the highest level of fiscal effort, according to the institute.
Using the Tax Foundation’s Competitiveness Index for 2023, Spain ranks among the OECD economies with weaker fiscal competitiveness. The report notes a marked decline in this indicator during the current legislative period. The IEE emphasizes that the burden from fiscal rules, the way the system is designed, surpasses the EU average by 17 percent. Spain, last year, stood 31st out of 38 analyzed countries for competitiveness in taxation. That was three places lower than the prior year and eight places below the 2019 ranking, with a slight drop from 2021.
Another finding shows that the net salary paid to a worker in Spain is roughly 60 percent of the total cost borne by the employer. The study suggests that with a hypothetical salary of one hundred euros, the employer would incur around 140 euros in total costs. Workers often underestimate the heavy social contributions that raise labor costs, a squeeze that the institute claims fuels unemployment and the informal economy.
Analysts warn of a notable loss of fiscal competitiveness since the pre pandemic period. They point to tax increases on businesses and entrepreneurs and argue that legislative techniques were not ideal. The continuing ascent of taxes, alongside the maintenance of newer tax figures introduced with temporary intent, has been a recurring theme, according to Gregorio Izquierdo, director general of the IEE.