The OECD suggests that the next government should increase VAT and remove anti-inflation measures

OECD confirms Spain’s economy will slow in 2024 due to sticky inflation, ECB interest rate hikes and weak foreign demand. Even so, the international organization is confident that our country will lead the developed world with GDP growth of 1.5% next year, after a 2.5% recovery in 2023, due to resistance from our companies and resistance from family consumption. Mainly thanks to the implementation of the recovery plan and the reforms implemented by the coalition government, especially the labor reforms, according to its findings.

The Organization for Economic Co-operation and Development is using its report on Spain to make several recommendations for the incoming new executive, including a general increase in VAT, as well as special taxes on tobacco and alcohol and the environment. On the one hand, and to remove all anti-inflation measures (precisely, such as reducing VAT on food, such as limiting taxes on electricity or gas), on the other hand.

As he explains, the goal will be to start the process of reducing the deficit (the imbalance between income and expenditure, after the shocks of the pandemic and the price crisis), meeting the needs of the most vulnerable families, climate change, more investment. Increased spending on education and pensions and health care due to an aging population.

In the study, the OECD detailed that increasing the reduced VAT currently in place, starting with the cost of hotels and restaurants, would generate €5,000m in public revenue, 0.4% of GDP, which would be deducted from the deficit the government would cut. It hopes to close below 3% in 2024.

“VAT exemptions and reduced rates significantly reduce the revenue from this tax and contribute to its low effectiveness in Spain,” the agency believes. “Reduced VAT rates will disproportionately benefit high-income families. The government could consider moving towards a single, uniform VAT rate in the medium term by gradually expanding the VAT base and compensating lower income groups with targeted spending to reduce distortions,” the report said.

An increase in excise duty on tobacco and alcohol would certainly be better received by the public, increasing revenues by around 1.3 billion euros by the same calculations. Meanwhile, green taxes will boost collections by another Rs 5,000 crore. Or scrapping tax credits for petrol over diesel, which would “help reduce carbon and particulate emissions”.

The OECD, which consists of 38 countries and aims to coordinate their economic and social policies, confirms that Spain has room to increase these taxes, as the tax burden is lower than the European Union (EU) average. It also indicates that this increase will allow for lower personal income taxes for workers, especially families with children, and taxes on capital.

As for pensions, his most important recommendation is to “link retirement age to life expectancy” at all times, which he believes will save €1.5 billion a year, or 0.1% of GDP.

structural problems

In addition, it shows special concern for the labor market. Although he hopes the unemployment rate will fall below 12% and job creation will continue in 2024, as the current government has maintained, he regrets that Spain has the highest unemployment among developed countries. And it focuses on the problems of finding work for young people and the importance of adapting and updating the skills of the active population to the new needs of companies.

“More than 60% of Spaniards under the age of 34 live with their parents, mainly due to insufficient income and job instability. The priority should be to gradually increase the stock of social rented housing, as planned by the government,” the study said.

“An aging population, slow productivity growth and low investment are weighing on Spain’s growth potential,” the OECD said. He adds: “Making growth more sustainable will require more efforts to reduce dependence on fossil fuels, combat climate change and address water challenges.”

In his opinion, “the price of water should better reflect its scarcity, especially for agricultural purposes.” In addition, “fertilizer pollution should be eliminated by adjusting taxes or regulating its use. The concentration of nitrates in drinking water is problematic [las aguas subterráneas superan el estándar de la Directiva europea sobre asunto]”.

Source: El Diario

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