Yes, Spain achieved record revenues in 2022 thanks to a higher tax burden, which is especially suffered by the middle classes. Moreover, the geographical distribution is unequal, as Catalans pay up to 12.5% more income tax than the people of Madrid.

With 255,463 million euros, Spain set a new collection record in 2022, according to data from the Tax Agency. This figure represents an increase of 14% over the previous year, which held the previous all-time high. Of the three main taxes – personal income tax, VAT and corporate income tax – only the latter, which is levied on companies’ business, is still far from the statistical ceiling despite the large increase in corporate profits last year.

These data provide arguments to justify two of the results of a study carried out a few months ago by the Centro de Investigaciones Sociológicas (CIS). The first is that two out of every five participants consider that too many taxes are paid in Spain. The second indicates that 80% of those surveyed regret that taxes are not collected fairly and that those who have the most do not pay.

Higher tax bill due to inflation

The truth is that inflation is increasing taxpayers’ tax bills in two ways. The first is through VAT: if the tax base of a product is higher because of inflation, the amount we pay in VAT also increases. And this is a direct tax, which has no understanding of social classes or purchasing power. 

The second is through personal income tax: as salaries are updated to meet the rising cost of living, wage earners can jump up a bracket and be taxed at a higher rate of personal income tax. It should be borne in mind that this tax is based on progressive brackets – the more you earn, the higher the percentage you pay on your income – and the Spanish government has not modified these brackets to bring them into line with the rise in the CPI. Therefore, although the increase in salary is only nominal, as it does not increase our purchasing power due to inflation, we may end up paying a higher percentage of personal income tax. 

In practice, workers are paying more taxes every day and are losing real purchasing power. This is a disguised tax increase, which does not require a rise in tax rates and which explains part of the increase in the Spanish State’s revenue. In fact, it is estimated that each taxpayer in Spain paid an additional 199 euros last year linked to the increase in inflation, while in Catalonia this figure rises to 224 euros.

An unjustified increase

Unfortunately, the majority of citizens believe that this increase in the tax bill is not justified: 62% of those surveyed by the CIS think that they receive less from the Administration than they pay in taxes and contributions. 

That is why many experts are calling for the personal income tax brackets to be adapted to the increase in the CPI, as well as for the personal and family minimums, reductions and deductions to be adjusted. 

This means that this year’s income tax return should raise the current income thresholds by 5.7%, the equivalent of inflation in 2022. This is the only way to maintain the level of the effective tax burden.

The price of debt

A report by the Instituto de Informes Económicos indicates that the tax burden in Spain exceeded 42% in 2022. This percentage is a historical maximum and places it slightly above the 41.7% average in the European Union in 2021, the last year for which data are available. 

Tax liabilities in Spain have risen to the highest levels since the financial crisis, according to Eurostat data. The tax burden bottomed out in 2009, at 29.7%. Since then, the percentage has continued to increase at a much higher rate than in other neighbouring countries.

One of the main reasons for this is that Spain’s public debt closed in 2008 at 39.7% of GDP and reached over 120% in 2020. This has led successive governments to increase taxes to meet payments and adjust their financial commitments to the demands of Brussels.

Moreover, experts consider that there is an imbalance in the progressivity of taxes paid in Spain. As a result, there is an excessive concentration of taxes on middle-income earners, who bear the brunt of the tax burden.

Unequal taxation

Income taxation also differs from one autonomous community to another. The Madrid region has the lowest maximum marginal tax rate and Valencia has the highest. At present, Catalonia is above average and would be in the top 10 European countries with the highest marginal rate of personal income tax. 

In fact, Catalans pay up to 12.5% more income tax than the people of Madrid. And low-income taxpayers in Catalonia are the ones who pay the highest tax rate in Spain. 

We Catalans also fare badly in wealth and inheritance taxes, as these taxes are heavily subsidised in autonomous communities such as Madrid and Andalusia.

Criticism from employers

Once the Generalitat’s budget for 2023 had been approved, the employers’ association Foment criticised the fact that no taxes had been reduced and, on the other hand, the tax burden on wealth taxes had risen by 2%. Its president, Josep Sánchez Llibre, lamented in February that the tax paid on the purchase of a second-hand flat in Catalonia is 66% higher than that paid in Madrid and that there are 15 taxes of its own plus one in development, while in Madrid there are none. 

In contrast to those who criticise the Generalitat’s eagerness to collect taxes, some justify these taxes because of Catalonia’s underfunding. Beyond controversy, the Department of Economy has clarified that in 2021 these taxes raised only 295 million euros, which represents little more than 1% of the Generalitat’s revenue. 

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