Spain | Taxes causing distraction

The 2021 Central Government Budget Bill includes tax increases that distract from more important issues. The first of these is the deterioration observed in the different activity indicators and the untimely nature of the announcementof tax increases.

Key points

• Key points:
• The second is the need for true tax reform. BBVA Research estimates that the primary structural deficit in public accounts will reach 6% of GDP in 2020 and that, on top of this, public debt will reach around 120% of GDP.
• Part of the effort required moving forward will need to involve improving the tax system by making formal employment and saving more attractive, providing legal certainty for investors, reducing inequality, and mitigating some negative externalities.
• The focus at the moment should not only be on building consensus around the approval of the document, but also, on the one hand, given the state of activity, on eliminating bottlenecks that may delay its impact on the economy and, on the other hand, on ensuring that it is used as efficiently as possible.
• There is also a notable lack of detail regarding the reforms to be implemented over the coming years. This is particularly strange, given that this is one of the requisite conditions for accessing NGEU funds.
• Agreements can be reached “easily” over the coming months on issues relating to increased expenditure. However, agreement on tough decisions—where costs must be shared and losers will emerge (in order for the rest of society to benefit)—will be more difficult.

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