Households in Spain witnessed a decrease in net income in 2024 compared to 2008 figures, yet are burdened with higher payments.
Scoop: Spanish Households Still Struggling a Decade and a Half After the Financial Crisis
Hey there! Here's the lowdown on the latest economic report from Funcas' Cuadernos de Información Económica. Despite a real net income dip below 2008 levels, households are shelling out more in Personal Income Tax (PIT) than before the financial crisis. Economist, Desiderio Romero-Jordan, states that the average Joe isn't seeing much economic recovery, and it'll take years to catch up to the 2008 income levels. Curious about the overall picture? Let's dive in!
Key PIT stats: 30 million taxpayers raking in 130,000 million euros
The report sheds light on the main tax revenue contributors: PIT, VAT, Corporate Tax (CT), and Special Taxes (ST). You might be wondering if their revenue increased in 2024, and boy, did it! There was an 8.1% hike, amounting to 21,167 million euros, bumping their weight in GDP from 17.4% to 17.7%. Breaking that down, nearly four out of ten euros of that increase is attributed to PIT, followed closely by VAT, then CT, and finally ST.
PIT: Still the Main Player in Tax Increases
If you're wondering why PIT played a significant role in the tax increase, Desiderio has the answer. The PIT burden index exceeded the 2008 value in 2024, hitting 114.4, while real net average income hovered at 95.7. Without a deflated PIT to soften the blow, the expert warns that it'll take several years to hit the 2008 income levels again.
What's Deflating PIT? It's Time for a RefresherDeflating PIT essentially means adjusting tax brackets or allowances for inflation, ensuring taxpayers don't pay higher taxes due to inflation instead of real income growth. In Spain's case, without this adjustment, households are experiencing a slower growth in disposable income due to the absence of indexing in the post-pandemic period.
Inflation's Hidden CostsThe study also touches on VAT fiscal pressure, which stood at 5.7% in 2024, similar to the post-pandemic period average (5.8%) and the 2019 level (5.7%). VAT reductions were implemented as part of the social shield, but the increase in VAT revenue induced by inflation partially offset these reductions, leading to an increase in the average VAT bill for households.
Spaniards Dish out More than 40% of their Salary to Taxes and ContributionsAccording to the OECD, the Spanish average 40% of their gross salary to taxes and contributions. This shows the impact of the increased tax burden on households and raises questions about the effectiveness of Spain's current tax system.
Enrichment Data:
- Deflating PIT refers to the process of adjusting tax brackets or allowances for inflation, preventing taxpayers from paying higher taxes due to inflation rather than real income growth.
- Failing to adjust tax brackets for inflation can exert downward pressure on household income growth, making deflating PIT a significant policy tool for maintaining equitable taxation.
The average Spanish household's struggle to recover economically, as indicated by the Funcas report, is partially due to an increase in Personal Income Tax (PIT) contributions, which has outpaced the growth in real net income. This situation highlights the importance of deflating PIT, a policy tool that adjusts tax brackets or allowances for inflation, to prevent households from paying higher taxes due to inflation instead of actual income growth.
Despite households contributing significantly to the economy, with PIT accounting for nearly four out of ten euros of the tax increase in 2024, Spain's current tax system, which requires the average citizen to pay over 40% of their gross salary in taxes and contributions, has raised questions about its effectiveness.
