The OECD sees it "imperative" to accelerate fiscal consolidation in Spain

Calls for abolishing the support measures introduced during the energy crisis, more VAT and green taxes and reforming pensions

MADRID, 25 Oct. (EUROPA PRESS) -

Spain's demographic prospects and the country's high level of public debt make it "imperative" to accelerate the pace of fiscal consolidation, according to the Organization for Economic Cooperation and Development (OECD), which proposes the withdrawal of support measures deployed during the energy crisis once the recovery "is firmly underway."

"It is imperative to accelerate the pace of fiscal consolidation, given the demographic prospects and the high public debt," states the 'think-tank' of advanced economies in its 'Economic Study of Spain', presented this Wednesday in Madrid.

The OECD, which predicts that the public deficit will close this year at 3.8% of GDP to drop to 3.5% next year, while the debt will exceed 109% in 2023 and reach 110% in 2024, considers that sustained fiscal consolidation will be necessary to reduce the public debt/GDP ratio and create space for necessary spending and to respond to future shocks.

"Given the poor demographic outlook and the resulting age-related spending pressures, as well as the need to spend more on the green transition, it would seem prudent to accelerate the pace of fiscal consolidation to restore pre-Covid debt levels in a few years," he warns.

In this sense, given the magnitude of the challenges of long-term public finances, the OECD considers that Spain must adopt a medium-term plan to accelerate the pace of deficit reduction and warns that said fiscal consolidation will probably have to depend both to improve spending efficiency and to mobilize additional income.

In addition to increasing output by about 2.2% over a ten-year horizon, policy changes recommended by the OECD, such as increasing funding for education and childcare, linking retirement age to life expectancy and reduce regulatory barriers, would lead to a net budget gain of 0.5% of annual GDP.

In its study, the OECD highlights the increase in the tax burden recorded, although it emphasizes that not much attention has been paid to efficiency, pointing out that there is room to further reduce tax evasion by providing the Tax Agency (AEAT) with more resources, to make the tax system more efficient and further increase revenue.

Likewise, despite the effort to make the tax system more redistributive and a little more ecological, Spain still has a tax/GDP ratio lower than the EU average levels and room to raise some additional revenue, particularly from VAT, as well as through environmentally related taxes and other special taxes, which are lower than those collected by European counterparts, the OECD notes, adding that greater reliance on these tax bases would limit distortions due to economic growth.

On the other hand, to the organization, some taxes appear unusually high, particularly non-recurring property taxes, while well-designed inheritance taxes can increase revenue and improve equity, with lower administrative and efficiency costs than other taxes. alternatives.

In the case of VAT, the OECD considers it to be "underused", as exemptions and reduced rates (especially in hotels and restaurants) significantly reduce VAT revenues and contribute to Spain's poor efficiency in collecting the tax.

In this sense, it maintains that reduced VAT rates "disproportionately benefit higher-income households" and suggests that the Government could consider moving towards a single, uniform tax rate in the medium term by gradually broadening the VAT base and compensating lower income groups through targeted spending to reduce distortions and achieve greater equity.

For its part, it considers that the recent legislation that made electronic invoicing mandatory for operations between companies and the self-employed, and a draft standard that seeks to extend electronic invoicing to all operations between companies, could help reduce tax evasion and improve tax collection, so efforts must continue to promote electronic invoicing.

The OECD considers that "Spain has considerable scope to make the tax system more environmentally friendly", as revenue from environmental taxes as a percentage of GDP is low compared to most European OECD countries. and have fallen over time from a high of 2.25% in 1999 to 1.75% in 2021 and an expected 1.25% in 2022.

It also warns of other features of the tax system that remain environmentally costly, including a tax advantage given to diesel over gasoline in road transport, zero rates for fossil fuels used off-road (as in commercial shipping, aviation and rail transport) and especially low rates for fossil fuels used in industry (particularly zero in the fishing sector).

Furthermore, it criticizes that several tax-related measures adopted during the current energy crisis have been detrimental to long-term environmental objectives by suppressing price signals, in particular tax exemptions on gasoline.

In this sense, he argues that it would have been preferable and less expensive to resort to cash transfers or block tariffs, where a basic amount of energy is provided at a reduced price with a much higher tariff applied on top of that rate to encourage frugality. energy, or social tariffs with low prices only for low-income groups.

More generally, as environmentally related taxes increase, the OECD warns that adequate compensation measures must be provided for lower income groups for reasons of social equity and to ensure the necessary public support for mitigation of climate change.

Regarding the sustainability of the public pension system, the OECD considers it possible that new measures are needed, among which it proposes linking the legal retirement age to life expectancy, but also extending the calculation period to access a pension.

In this sense, it suggests that, instead of imposing additional contributions on the generation of active workers, the Government should lengthen working life by linking the legal retirement age to life expectancy at the time of retirement.

Likewise, he argues that the accumulation factors in the system should be considered, which allow a half pension after only 15 years of contributions and a full pension after 37 years (which will rise to 38.5 years), "much less than the corresponding periods elsewhere."

Furthermore, for the OECD the reference period for calculating pension rights should be extended, probably to at least 40 years, to ensure financial sustainability.

"Otherwise, if pension deficits continue to be covered by general revenues, the maintenance of pension benefits will come at the expense of other priorities and to the detriment of the already disadvantaged younger generation," he adds.