04/22/2020 05:00 – Updated: 04/22/2020 14:35
The degree of uncertainty on the future of the economy is maximum. But even so, there is already some consensus on how much gross domestic product (GDP) can plunge in 2020.
The range is between -8% estimated by the International Monetary Fund and -9.5% calculated by the Bank of Spain in its intermediate scenario. Other study services even foresee a greater collapse depending on the duration of the closure of activities. But it would be even worse if, as a consequence of the economic crisis, a strong tension of the financial markets or an aggravation of business solvency. If these circumstances occurred, according to the central bank, it would be talking about a fall in economic activity equivalent to 12.4%.
IMF notice: the crisis will be especially hard in Spain and unemployment will exceed 20%
Javier G. Jorrín
The Fund foresees the biggest contraction in the global economy since the Depression of 1929 and anticipates that Spain will be one of the losing countries along with Greece and Italy
In any case, around three times the 3.8% that the economy fell in 2009, the year of Great recession, which took ahead 6.1% of the tax bases that the Treasury taxes. Or 6.6% if only what the State actually collects through its tax system is taken into account (Personal income tax, VAT, corporations, taxes…). Not counting the taxes of the autonomous communities or the rates imposed by local corporations.
That is, given the elasticity of taxes on economic activity, one would be talking about a drop in tax collection of 19.8% in 2020, triple that of 11 years ago. Tax elasticity, as is known, is defined as the sensitivity of income to the business cycle. Or put another way, the quotient between the growth of collection in homogeneous terms and the nominal increase in GDP (with inflation).
How much does that almost 20% represent with respect to what the Treasury collected in 2019? Well, no more, no less, just over 42.1 billion euros. In other words, the total tax revenue of the State would exceed 212,808 million euros – latest estimate from the Tax Agency – to just over 170.7 billion, given that the elasticities have not changed significantly between the previous recession and the current one.
The European Commission, as revealed by the current Government in its latest stability program sent to Brussels, has corrected the influence of the economic cycle on the budget balance, which is updated every six years. And the result is that, in the case of Spain, the elasticity has gone from 0.54 in 2013 to 0.60 in 2019, which implies an increase in the sensitivity of the budget to the economic cycle. In the case of personal income tax, economists Sanz, Castañer and Rosemary have estimated an elasticity of 1.37.
Although all the tax figures will be affected by the drop in collection, the most significant case is that of VAT and the Corporation tax. In the first case, due to the collapse of consumption, and in the second, due to the collapse of business profits in a context in which many companies work at mid-gas or have even ceased their activity.
In the case of private consumption, which is the main component of GDP from the demand side, BBVA Research has estimated a decrease of -8.7% for the year as a whole. At the moment, what is known is that the sectors related to the hotel, tourism and entertainment sector record decreases in spending between 60% and 100%, and that, logically, weighs down the State’s collection capacity.
Private consumption, the main component of GDP from the demand side, could fall 8.7%, according to BBVA Research estimates
The Bank of Spain itself recalls in its latest report that the setback in VAT and company tax collection in 2008-2009 exceeded by around 50% what would have been expected according to the historical elasticities.
And it must be borne in mind that both tributes they represent no less than 45% of everything the State enters (including the regional sections) for taxes. VAT, specifically, collected 71,538 million euros last year, while in companies, with a decrease of 4.4%, the total collection amounted to 23,733 million.
The case of personal income tax is even more worrying, since it is the most powerful tax figure. Raised last year 86,892 million euros, which gives an idea of its importance from the point of view of income.
Income tax, as is known, is determined by the behavior of employment, and what is known so far is that only in March did the economy destroy 834,000 jobs. A figure that will increase in the coming quarters, which will obviously reduce the tax bases in a very significant way. Without a job, there is nothing to tax.
Treasury prepares a tax moratorium on self-employed and SMEs until May 20
Javier G. Jorrín
Montero announces that it is finalizing the details to delay tax payment deadlines by one month and to allow self-employed people and SMEs to pay taxes by direct estimate
The collection of special taxes, likewise, will suffer a sharp decrease. In particular, the one that taxes the sale of hydrocarbons. In this case, for a double reason. On the one hand, due to the collapse of sales, but also due to the collapse in gasoline prices. This Tuesday, the Brent type barrel (159 liters) was trading below $ 20, Minimum level since 2002.
In the stability program presented to Brussels, the Government had foreseen an increase in tax collection of three tenths of GDP (from 22.8% to 23.5%), while, including social contributions and property income, it had estimated income equivalent to 39.8% as possible, seven tenths more than a year before. Those forecasts are now a piece of paper.