Taxation in Spain and the Autonomous Communities
Report prepared with the contribution of the Institute of Economic Studies (IEE), the General Council of Economists and PwC, which analyzes the fiscal framework in Spain and its Autonomous Communities (CCAA), taking into account that in order to recover the potential growth of the economy and to overcome the Covid crisis in a sustainable way, many structural reforms will be necessary to be taken in the near future, among which the reform of the tax system will play a prominent role.
The report offers a multitude of comparative tables between the Autonomous Regions of Spain and other countries, with interesting conclusions, among which the following stand out:
- Prioritize economic activity over tax design: Tax collection should be based on increasing tax bases, promoting economic growth and combating tax fraud, rather than on increasing the pressure on taxpayers who already bear a tax burden comparable to, or higher than, that of the comparable countries. The competitiveness of Spanish taxation is below the EU average (110 vs. average 100) and far behind the countries with the best practices. Spain would have an effective tax burden above the OECD average (34.6% of GDP), if factors such as the black economy or the income per capita were taken into account.
- Increasing the tax burden does not ensure more revenue: If the starting point of the future tax reform is to raise the level of revenues over GDP by 6 percentage points to approach the misleading European average, this would cause a contractionary effect in the economy, in the medium and long term, of up to 10 points of GDP and a loss of employment of about two million.
- In favor of reforming the regional financing system to improve fiscal competitiveness and fiscal co-responsibility; against upward tax harmonization among Autonomous Regions. Many autonomous regions have some of the most burdensome tax systems in the EU. The different regions in Spain have to compete, at a global level, with the tax systems of other countries and regions.
- The differences that arise between Autonomous Regions are a reflection of fiscal co-responsibility, understood as the freedom to design their spending and taxation in accordance with the preferences of their citizens. This ability to design own taxes and modify nominal rates and benefits is a consequence of the decentralization of spending and is a guarantee of efficient public spending.