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The Government anticipates that the tax pressure (the proportion that tax revenues make up of the economy as a whole) will remain in 2023 at the same level as this year, 38.2%, which has meant a decrease compared to 39.1% in 2021. The update of stability program 2022-2025 sent last Friday to Brussels, which incorporates a slowdown in economic growth expected from 7% to 4.3%, does not include express tax changes, despite the fact that the white paper for tax reform was already delivered weeks ago by the group of experts commissioned by the Ministry of Finance. The initial forecast was to carry out the reform as of 2023. The document even forecasts a slight decrease in the following two years, in 2024 and 2025, with 38.2% in both cases.

Anyway in the national reform planthe other document sent to Brussels, ensures that “it will take into consideration the recommendations contained in the report of the committee of experts for tax reform and will collect the revision of the taxation on the registration and circulation of vehicles and new regulations on taxes on fluorinated gases and hydrocarbons”, which means equalizing the taxation of diesel to gasoline.

The Executive justifies the evolution of the fiscal pressure the fact that the Nominal gross domestic product (GDP) growth (not excluding inflation) will outpace income growth. The document explains that this evolution of the weight of public revenue over GDP, “in an inertial scenario in which no tax measures are incorporated, responds to a progressive improvement in the current context due to the recovery of economic activity and the positive effects of the recovery plan, for whose deployment, the Government has already requested a second installment of the ‘Next Generation’ funds of 12,000 million.This amount is added to the 9,036 million euros of pre-financing and the 10,000 million euros of the first payment linked to the achievement of a series of reforms, such as the labor reform.

The Executive estimates that taxes will reach 317,657 million euros in 2022which represents an increase of 7.4%, but a slowdown compared to the 15.3% reached in 2021. This is explained by “the rebound in economic activity and this despite the tax measures introduced to alleviate the escalation of energy prices that have had a negative effect on the expected collection of taxes on production and imports, since the tax cuts will continue until June 30”.

Covid effects

In turn, the expected income in 2022 “will be positively boosted by the effect of the tax measures adopted in 2021, but whose effects have been partially delayed until 2022.” In turn, the effects of the measures adopted in 2020 to alleviate the effects of covid still survive, some of which operate with a positive sign and others, on the other hand, with a negative sign.

With respect to the expenditure to GDP ratio is progressively reduced from 50.6% of GDP in 2021 to 44.3% in 2025. The greatest reduction in the relative weight of spending is observed in 2022, “by progressively overcoming the pandemic situation that has marked the last years and that will allow the completion during 2022 of all the labor measures adopted to combat the health emergency caused by covid-19 (benefits for cessation of activity, exemption from Social Security contributions, for ertes, to self-employed , and temporary disability Covid)”.

For the rest of the years, the previous trend is maintained, strengthened by the fact that the majority of expenditure headings grow less than nominal GDP, thus allowing a reduction in their relative weight.

Lower public deficit

Despite the revision of the macroeconomic scenario, a greater reduction in the public deficit is expected than that proposed in the previous stability programme. In this sense, it is expected a significant correction of the deficit in 2022 to 5.0% of GDPto continue with the consolidation in subsequent years, reaching a 2.9% deficit in 2025.

For the remaining period, a slowdown in tax growth is expected, following the same cyclical profile as GDP, both in real and nominal terms. Thus, taxes would grow at rates of 5.7%, 4.0% and 3.5%, which would mean reaching 361,261 million euros in 2025 compared to 335,819 in 2023.

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According to Government estimates, revenue from taxes on income, assets and others show a slowdown throughout the entire period, with a growth rate of 5.9%, 5.5% and 4.9% for 2023, 2024 and 2025 respectively, reaching, at the end of the series, the amount of 181,310 million euros compared to 163,722 million euros in 2023.

The social quotes register a growth of 3.8% in 2022, up to 13.7% of GDP, “due to the good behavior of employment” and “of hiring conditions”, as well as by “the improvement of the labor market, of the productivity, driven by the labor reform and the rise in the minimum interprofessional wage”. In the years following 2022, the increases are adjusted to the projected evolution of employment and salary remuneration. Consequently, prices will grow from 2023 by 6.3%, slightly moderating this trend in 2024 and 2025, the year in which they will reach 13.9% of GDP.

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