Published on Friday, October 14, 2022

Spain | Tax bonanza, temporary or permanent?

In 2022, the support measures put in place by the government in a bid to combat rising energy prices are expected to reach 16 billion euros, or around 1.3% of GDP. Despite this, the imbalance in the public accounts is following a similar path to its trend in 2019, when it ended the year at 3% of GDP.

Key points

  • Key points:
  • In other words, the deficit should fall by 8 pp of GDP within two years. To put this in context, in the last 40 years, the largest decline in the public deficit over a two-year period was achieved between 2012 and 2014 and reached 5 pp of GDP.
  • The strong and atypical performance of the deficit comes on the back of strong revenue growth, which is outpacing GDP growth by quite a stretch.
  • Various reasons have been put forward to explain this divergence, ranging from the impact of job protection measures, such as the use of furlough schemes, to the provision of liquidity to support businesses, such as government-backed loans.
  • The government seems to be aware of the risk that revenue might not continue to perform as well moving forward. In particular, the deficit is expected to end the year at closer to 4% of GDP than to 3%.
  • However, looking ahead to 2023, the projections for revenue growth are somewhat more optimistic. In particular, tax revenue is expected to increase by 7.7%, which would still be higher than nominal GDP (6.1%).

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