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The new taxes would increase revenue by $3.9 billion in 2023

The government sent the budget plan to the European Commission this Saturday. This is a document that, in addition to informing Brussels about the state budget under development, includes data on the executive authority’s revenue and expenditure forecasts for the following year. Thus, a fiscal ceiling of about 10,000 crore has been set for possible expansion of anti-inflationary measures. Also, a joint assessment of the new fiscal measures introduced for the coming year is provided. There will be an increased collection of €3.927 million.

In particular, the government has established two blocks of tax measures in the budget plan, which will be used for the first time in 2023. On the one hand, what is included in the general state budgets that have begun to be processed in Congress. This fundamentally includes a reform of the personal income tax to increase the tax allowance for low-wage earners up to 21,000 euros, which reduces the income for next year by 1,565 million euros. This section also includes €100 in support for working mothers through personal income tax cuts, representing €222 million in lower collections. And finally, a loss of €21 million in revenue due to the reduction in VAT on feminine hygiene products. All add up to a haul of €1.808 million in collections.

The second section includes other measures, the processing of which is independent of the budget, but inevitably affects state revenues. The main measure is a tax on electricity companies and banks, which will add 3500 million in 2023. This bill has not yet been approved by Congress, but is expected to be ready by the end of the year. In a similar scenario is the solidarity tax for the great wealth. The measure, by which the government tries to prevent the wealthiest from escaping wealth tax through community bonuses, is expected to raise 1,500 million euros, according to a document sent to Brussels. 491 million euros will contribute to the tax on single-use plastics approved by the Law on Waste and Contaminated Soils. Finally, €244 million will be contributed in 2023 by suspending 50% of the loss compensation of business groups in corporate tax. 5735 million euros in total.

Thus, the balance of measures of both groups will be positive for the state, as it will lead to an increase of 3,927 million euros. The government has so far only provided a global estimate of the €3,100m gain over two years, although that report only looked at the latest fiscal package agreed by the PSOE and United We Can and left out the plastic tax or taxes. Banks and electric companies, which was announced earlier. Some of the measures included in this report, sent by the government to Brussels, have not yet been approved, so any changes during its processing may lead to different results.

Much of the 2023 tax changes are temporary, and some of the effects won’t actually be felt until 2024. For example, the personal income tax cut on low-wage earners will have an additional $316 million impact this year. The self-employed rebates will be applied in 2023, but their effect on the public accounts will be in 2024, reducing government revenue by more than 180 million. A €100 allowance for working mothers would also reduce personal income tax collection by 52 million in 2024.

There will be no tax increase on savings income in the 2024 accounts, meaning an increase in personal income tax for those who earn the most in this way. Also, that year will see a reduction of companies from 25% to 23% of turnover for small and medium-sized enterprises up to a million euros, which will reduce revenues by 292 million. The other modification of this tax, which we have already mentioned, which affects the compensation of losses, will have the main part of the impact in 2024, leaving a profit of 2.195 million euros for this exchange rate. Together, the measures implemented in 2023 will also have a positive impact of 1,552 million in 2024.

This increase in collection, which will result in new tax measures, will be added to the trend of the rest of the tax figures, which have not changed. It will depend on the evolution of the economy and the inflation data that led to this year’s statistics. State general budgets, which do not include all measures, envisage a 7.7% increase in tax revenues by 2023.

In the document in which the government presented all these data, it became known this Saturday that the executive authority developed two scenarios for the next year’s budget, which was not announced at the two press conferences held at the presentation. Draft public accounts for the next financial year. The first, scenario 1, assumes the revenue and expenditure projections reflected in the bill registered in Congress. The second, scenario 2, examines the hypothesis that some support measures for households and companies should be extended due to the inflationary crisis caused by the war in Ukraine. That is, a 15% increase in the minimum living wage, a reduction in electricity and gas taxes, or gasoline premiums. The government has not indicated which measures could be extended, although Brussels admits that it has more than 10,000 million fiscal balances to use in the event.

Where does this mattress come from? The executive has a tax revenue of 244,000 million euros in the baseline scenario. This means an increase of up to 10% compared to last year. However, this closing forecast is “cautious”, the finance ministry said, and admitted it could be higher. In fact, till August the collection growth was 18%. Bank of Spain Governor Pablo Hernández de Cos went to Congress on Monday to evaluate the General State Budget bill and pointed in that direction. The authority expects the collection to be significantly higher than the deficit set by the government for this course, and the deficit will also be much lower than the government’s target for 2022. that it will be 4.3%.

This difference is what becomes the fiscal cushion that the government can use for scenario 2, in which it considers maintaining some support measures during the crisis. This is also the reason why the Bank of Spain considers next year’s deficit target of 3.9% “possible”, even though the government’s growth forecasts (2.1%) differ from the body’s forecasts (1.4%). As Hernández de Cos explained, higher-than-expected collections in 2022 — which already happened in 2021 — would be enough to offset higher costs and lower-than-expected growth.

With this fiscal conundrum, the coalition government faces a number of fronts in the coming months leading up to the end of the year, with reports showing what its final year will look like. The processing of the general state budget is fundamental. But he will also have to implement a proposal by the PSOE and United We Can for a law to deal with taxes on banks and energy companies. The government has the opportunity to introduce in the amendments the creation of a solidarity tax on large properties. This rule must be ready by December 31 so that these taxes can be collected in 2023.

Source: El Diario





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