What the Treasury obtains thanks to Personal Income Tax represents the most important tax of all, even more than VAT or Corporate Tax (since it is almost 40% of its revenues). Let’s see what was the collection in 2016 and of 2017, which will help the State to face all the budgeted expenses.
The personal income tax trend in Spain
Recently, in the last few months, if not the last two years, there has been talk of positive data regarding employment. There are figures of growth in Social Security registrations and a reduction in unemployment, which is always a great thing.
The fact that cannot be overlooked is that the employment generated in many cases is precarious, which leads to lower tax and contribution collections. We will now look at the key figures.
It is true that year after year more Personal Income Tax is being collected, but not at the expected rate:
- 2016: personal income tax collected €75,432 million (0.1% above the previous year, but the budget for that year was 4.3% increase)… did not meet forecasts.
- 2017: estimated to collect 7.7% more than in 2016, but at mid-year the increase was 3.2%, not even half of what was budgeted (July 2018 revision: closed collection figure was 77,038 million).
The numbers that really matter
Let’s see how personal income tax is distributed according to the salaries of Spanish citizens:
- More than 50% of taxpayers are in the €12,000-60,000 annual income bracket. They are almost 11 million people
- Under 12,000 €, as we said, there are more Spaniards than before the crisis (about 8% more), in total: more than 7 million.
- The bulk of the revenue, however, comes from the upper classes: 3.5% of the citizens allow the collection of nearly 40% of the total income tax revenue… which is an understatement to say the least.
Of course, these are worrying data, especially with regard to the generation of precarious employment and the concentration of wealth in a few hands.
Progressivity of the tax, the key to everything
Personal Income Tax has been conceived as one of the keys to the Welfare State, and it is intended to ensure that those who earn less are taxed less (and at a lower average rate) than those who earn more (to whom a higher tax rate is applied).
Because of this progressivity, it is true that high incomes seek formulas to minimize taxation as much as possible, for which the Government promotes measures that help them to do so. These measures have been reduced over the years, which is why citizens have complained notably, as have tax advisors, who see the inconsistency of these measures, since they are a brake on the economy, reducing the movement of money.
Examples are:
- the elimination of the mortgage installment tax deduction for several years (for new hires), or
- the reduction of the maximum contribution in the pension plan (limited from January 2021 to €2,000 per year).
If you want to find out about the best pension plans in terms of profitability obtained per contribution, we have those of the best fund manager for the month of December, along with many others.
