The high inflation that Spain has suffered for a few months is filling the coffers of public administrations like never before. The Bank of Spain estimates that the effect of the sharp rise in prices on the recent evolution of public revenue is notable and has been gaining weight, so that up to the third quarter of last year, the strong increase in inflation would have accounted for 59% of the increase in collectionespecially in relation to VAT and personal income tax.
great dynamism
The recently published financial supervisor’s report entitled «Public revenue after the pandemic. Fiscal Residues and Inflation” states that inflation would be responsible for 7.3 percentage points of the 12.3 point increase in public revenue over GDP in the first three quarters of last year.
The Bank of Spain explains that after the covid-19 pandemic, there has been a high dynamism of public revenue in Spain, with a increase of 3.7 percentage points of its weight as a percentage of GDP in the last three years.
From the analysis carried out, the supervisor concludes that the two most prominent factors behind the strong growth in public revenue after the coronavirus pandemic are inflation and “the unexplained or residual component”, for which reason the entity warns that “the prudential principle would advise not to consider this increase in income as permanent.
not always immediate
The rise in prices could roughly explain the 46% of the increase in public revenue since 2020, although it is pointed out that the effects of prices on public revenues are not always immediate. The impact of inflation is immediate in the case of indirect taxes such as VAT, which are automatically affected by the evolution of consumer prices, but not in the case of other taxes such as personal income tax, whose tax bases can be seen affected by inflation with different intensity over time.
The report predicts that for this year a lower contribution of inflation on VAT can be expected as a result of the expected slowdown in prices. However, it also warns that it is likely that the impact on personal income tax and social security contributions will increase to the extent that there is a certain acceleration in wage growth and as a result of the indexing of pensions to average inflation for the year. previous year In this sense, the Bank of Spain emphasizes that inflation not only affects public revenue, but also expenses, as occurs with the pensions themselves.