SPANISH BUDGET PLANS

Spanish government planning to increase taxes by €6 billion in 2021

Public revenues are forecast to grow by €33.4 billion next year thanks to a rebound in the economy and new fiscal measures

Finance Minister María Jesús Montero in Congress this week.
Finance Minister María Jesús Montero in Congress this week.Bernardo Diaz / Europa Press

After the devastating effects that the coronavirus crisis has had on the Spanish economy, the government is predicting that there will soon be light at the end of the tunnel. According to a budget plan sent to Brussels on Thursday, public revenues will rise by €33.4 billion in 2021 thanks to a sharp rebound in gross domestic product that is forecast, and the introduction of new fiscal measures including a hike on sales tax of sugary drinks and a “plastic tax.”

The pandemic has prompted the Spanish government – a coalition of the Socialist Party (PSOE) and junior partner Unidas Podemos – to put the “extensive fiscal reforms” it had planned on hold. But there will be tax changes next year, as Finance Minister María Jesús Montero had already announced. According to the plan sent to Brussels on Thursday, these will boost revenues by €6.8 billion in 2021 and €2.3 billion in 2022. Not including a new law combatting tax fraud, which is expected to bring in around €830 million a year, revenues will be boosted by around €6 billion in 2021 and €8.4 billion over the two years combined.

Next year will see new levies on digital services introduced, commonly known as the “Google tax,” as well as tariffs on financial transactions known as the “Tobin tax.” Both have been given the green light in Spain’s upper house of parliament, the Senate, and will be implemented in around three months' time. The government calculates that together they will bring in some €1.8 billion combined.

The budget plan also includes a rise in so-called “green taxes.” A number of institutions, including the European Commission, the Bank of Spain and the Organisation for Economic Co-operation and Development (OECD), have recommended this shift to finance part of the economic recovery. In Spain, the pressure of such taxes on GDP is lower than the European Union average: 1.8% compared to 2.4%.

Without explaining how, the plan sent to Brussels involves revenues from environmental taxes of €1.3 billion in 2021. It does, however, detail the creation of a tax on single-use plastic, which is due to bring in €491 million next year.

The government is also planning on raising sales tax (VAT) on sugary and artificially sweetened drinks, taking it from 10% to 21%. This was agreed on by the PSOE and Unidas Podemos before the coalition government was formed, and will bring in €340 million in 2021 and €60 million in 2022, according to the plan.

Also without providing detail, the government’s plan includes a rise in direct taxes, possibly on high incomes and corporate tax, with an impact of €2.5 billion over the next two years, and a rise on indirect taxes that will bring in €1.7 billion.

The Spanish government is forecasting a 7.2% rebound of GDP next year after the 11.2% fall forecast for 2020. This growth could, however, rise thanks to European coronavirus funds. The incorporation of more than €25 billion from the first tranche of the relief would take the GDP rise for 2021 to 9.8%. Thanks to this extra money, the coming year will also be characterised by an unprecedented rise in the government’s spending ceiling, of nearly 54% to €196 billion. Debt, on the other hand, will begin to fall in 2021 to reach 117.4% of GDP compared to 118.8% in 2020.

The government estimates that public spending in 2021 will rise by €2.4 billion, although it will fall with respect to GDP from 53% to 48% thanks to a rise in economic activity. The budget plan also includes the impact of a gradual rise in paternity leave in Spain, which will go from 12 to 16 weeks, and the government’s new guaranteed minimum income scheme, which is aimed at helping vulnerable households.

English version by Simon Hunter.

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