Before beginning the analysis of what we call “tax burden”, we must understand what it is. In general terms, the tax burden is the amount of many that is paid in taxes by taxpayers to the Public Authorities.
This tax burden, or taxation, is the amount of money paid by individuals, legal entities or other entities based on the gross domestic product (GDP).
As a result, tax burden analysis and its possible comparison among countries is done by studying the ratios of income derived from taxes on the GDP and the implicit tax rates of the primary tax figures, defined as the quotient between tax income and the macroeconomic variables that approximate their tax bases.
Both Eurostat and the OECD publish data related to the tax burden, which is available to all those who are interested. However, taking into account that these tax burden data and measurements may have limitations based on the method used, which could affect both the calculation and the evolution, these limits must be taken into consideration for comparison purposes.
(x) The tax burden is measured as the amount collected from the following taxes: production and import taxes, current taxes on income and property, taxes on capital and obligatory effective social contributions.
This amount is reduced by the “adjustment for uncertain collection”.
The development of welfare states requires governments with greater economic muscle. It is obvious to think that the need for that muscle comes with a notable increase in tax collection.
This situation can and must be analyzed in reference to the evolution of the tax income ratio on the GDP on an international scale. This analysis shows how the tax burden has evolved in countries and its repercussion on taxpayers. That evolution has not decreased, given that, as a result of the above, it has increased progressively and permanently.
According to the results of the analysis of the data available to use, we can see how in the second half of the 20th century the increase was unstoppable, while in the 21st century there has been a stabilization, with certain variations caused by the economic cycle experienced during the 21st century.
In analyzing how the tax burden has developed in the European Union, the weighted average has increased, from 12% in the 1960s to 40% in the first decade of the 21st century.
What does this mean? Put simply, we could say that people or entities that pay taxes in the economic sphere of the EU spend a total of 146 days of work or production to pay their taxes. Naturally, these data must be applied to each of the countries to determine their accuracy.
It is possible to conclude from the analysis of the tax burden in the EU, compared to other economic powers, that it is greater here than in those other powers. For example, it reached 29% of the GDP in the 1980s before stabilizing. As regards the United States of America, it has remained stable in recent decades, at a ratio of 25%. All of this is according to the OECD.
But the analysis of the long-term tax burden evolution in the European Union shows that it is similar in the whole of the countries that comprise it. However, the economies of those countries are not homogenous; there are different levels among them.
Taking as an example the 2016 fiscal year, we can see that the tax burden was 38.90% in the weighted average for the EU countries, although in France, the Nordic countries and Belgium it was 44%.
In Ireland, Lithuania and Bulgaria, the levels are lower than 30% of the GDP.
What about Spain? In this case, we are in the group of EU economies with a 33.3% tax burden, placing us at the end of the line in tax burden.
That said, we must consider that Spain was no stranger to the European trend of applying a greater tax burden on its taxpayers, although, taking into account where we came from prior to democracy, the analysis must consider the low level of taxation we started from.
From 1978 to 1989, the tax burden in Spain increased by 15 percentage points, placing Spain relatively close to the rest of the countries in Europe, just 5 points behind.
After that spike in the tax burden in Spain and into the decade from 2000 to 2010, there were no significant changes to the tax burden on taxpayers. We must look, then, at the first decade of the 2000s, a period in which Spain experienced a notable increase in tax income, coming primarily from the increase in earnings from the real estate sector and, obviously , a spike in the economy. During this period, the tax burden in Spain was very close to the European average, just 2 points below.
Broadly, we would highlight that, following that period of expansion, Spain was hit by a financial crisis that illustrated that the increase in income from taxes was a result of a boom and, as a result, it did not have a solid base to face that period of crisis.
In addition to a weak tax structure, there was also a reduction in taxes during the expansion period, all due to a notably lower collection, so the tax burden on the taxpayer was reduced notably to nearly 5.4% less than in the period of economic expansion. On the other hand, in the rest of the EU, despite the crisis, the tax burden remained stable.
If we analyze the arithmetic average of Spain compared to the rest of the EU members, it reached 7.2 points of the GDP. That forced Spanish tax authorities to implement significant changes in legislation in order to return to the path it had lost, which, together with the economic recovery, has reduced the differences, situating it at 5.4 points of the GDP compared to the arithmetic average of the EU-15 or 2.6% of the EU-28.
What does the future hold for us? Following the recent elections, we cannot begin to predict what might happen, although if we are to believe their program, as well as statements by the interim Government, the goal is to increase the tax burden in Spain to bring it more in line with the EU average, applying different tax measures.
References and sources:
In writing this article, the sources used were Taxation Trends in the European Union and the OECD Revenue Statistics.
Banco de España Report 2018 (David López-Rodríguez and Cristina García Ciria).