Tensions on public spending are increasing on a global scale and are widespread in the accounts of States, which are looking for ways to increase their revenues. Fiscal pressure in the Organization for Economic Co-operation and Development (OECD) group of countries increased last year for the first time since 2021, according to preliminary data for the fiscal year that the organization released this year in its latest report. Income statistics (Tax statisticsin Spanish). The average income-to-GDP ratio rose from 33.7% in 2023 to a record 34.1% last year, after two years of declines. Spain recorded a similar increase, bringing its fiscal pressure to 36.7%, above the middle of the advanced economy club, as did other countries with well-established states, mainly in Europe.
Despite this increase, the Spanish budgetary pressure in 2024 was lower than that recorded in 2022 (36.8%). This does not mean that public revenues will be reduced. On the contrary, they have reached maximums and this year they are on track to record a new record. The explanation for this apparent paradox lies in the calculation of magnitude, which is determined as a proportion between decline and GDP. If the economy falls more than the decline, the ratio automatically increases. A paradigmatic case is that of the pandemic. In 2020, Spain was the OECD country where budgetary pressure increased the most. In 2021, it reached 37.4%, according to the organization, but this record does not indicate that the drop, in millions of euros, was greater than the current one. The answer lies in the denominator, GDP, which lost much more during the health crisis than income.
Today, the Spanish economy has regained lost ground, but it has increased in size and grown with twice the vigor of the Eurozone. Public revenues are moving in the same direction and growing even further, driven by the dynamism of employment, close to the 22 million affiliates. Inflation, which spiraled out of control in 2022 following the Russian invasion of Ukraine, also worked in its favor. It stimulated both nominal growth – which includes price increases – and decline, knowing that IRPF rates were not deflated at state level – the majority of communities only acted on the autonomous part of the tax –.
According to the OECD report, the income that weighs the most on total public taxes in Spain is social security contributions (34.7%) – the largest amount goes to businesses -, followed by income tax (24.4%) and VAT (17.6%). The pattern is similar in the rest of the 38 countries that make up the body, although the final date of the final tax ruling is very different due to the great heterogeneity that exists both in terms of economic and demographic structure and state model.
Mexico recorded the lowest public income-to-GDP ratio, at 18.3%, close to Colombia (19.9%), which was also the country where fiscal pressure fell the most last year, largely due to the decline in corporate tax cuts. Also in South Korea and Norway, larger percentage drops were seen. Denmark is positioned at the other end of the list, with a tax burden of 45.2% in 2024, the highest of the entire club.
The other countries which recorded a proportion above 40% are all on the European continent: Austria (43.4%), Belgium (42.6%), Finland (42.2%), France (43.5%), Italy (42.8%), Luxembourg (41.5%), Norway (40.2%) and Sweden (41.4%). These are states with a solid social protection system, which invest more than others in services and pensions. Today, Spain experiences less tax pressure than the media if read from a European perspective. The OECD itself urged Madrid, in a recent report, to adopt additional measures to cover growing pension expenses, recommending a revision of the figures that record consumption, in particular VAT and special taxes, which represent multiple tax advantages through which tax evasion is avoided.
Wage recovery
The tax burden has increased in 22 OECD countries, largely due to increases in IRPF tax refunds and social security contributions. “This is consistent with a recovery in real wages in OECD countries and with an increase in social contributions in 2024,” contextualizes the report, with reference to the best results recorded after the covid crisis and the inflationary coup that followed. In exchange, the ratio is decreasing in 13 countries and in only one, the United States (25.6%), without variation.
The country with the largest increase was Latvia, which recorded a return of 2.4 percentage points in 2024, up to 34.9%, thanks to the largest reduction in different figures (IRPF, contributions and corporate taxes). The second largest increase was recorded in Slovenia, with a total of 1.9 points, to 38.3%, for an increase in income from social security contributions.
Data from 2023, the latest year for which data is available for all OECD countries, social security contributions were the figure that contributed the most to total income. It concentrates, on average, 25.5% recovery, and an increase of 0.7 points was noted compared to the previous year. The second largest burden on the total tax refund is the IRPF (23.7%), which also increased its contribution during the period analyzed. VAT accounted for more than a fifth (20.5%) and other consumption taxes accounted for a further 10.8%. Corporate tax contributed 11.9%, recording a decrease of a tenth compared to 2022.
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