Economic analyst Marc Vidal denounces that the budget extension and the lack of deflation of income tax are generating a hidden tax increase for citizens. A situation that, as he explains, allows the Government to reduce the deficit without cutting spending.
Investor and economic analyst Marc Vidal has focused on a fiscal mechanism that, he warns, is silently increasing the tax burden on Spanish taxpayers. During his appearance in the 'Emergency Exit' section of the 'Herrera en COPE' programme, Vidal explained that the combination of extended budgets and the absence of deflation of income tax is generating a tax increase that no one has voted for.
Vidal downplayed the imminent vote on the spending ceiling in Congress, which the Government considers lost, and pointed out that the real problem is not in Madrid, but in the new European fiscal rules and, above all, in the effects of having the 2023 accounts extended for three years.
According to the analyst, a budget extension does not freeze spending, but distorts it. While mandatory items such as pensions (which rise with the CPI), debt interest, and public salaries continue to increase, investment is completely stalled. “What gets frozen is the only thing that has no legal obligation: investment, roads, infrastructure, electrical networks, technology,” Vidal detailed.
This situation causes the budget to “age from within,” in the words of communicator Carlos Herrera, as each year there is more mandatory spending and, consequently, less productive investment.
Paradoxically, this situation partly benefits the Government. Vidal revealed that, with the extension, spending is anchored at 2023 figures, but revenues have skyrocketed thanks to inflation. The State collects more through VAT on higher prices and contributions on higher nominal wages.
The key to this revenue increase lies in the income tax, which is not deflated to adjust it to inflation. “If your salary rises adjusted for inflation, which is not really earning more, it does push you into a higher tax bracket and, therefore, you pay more,” explained Vidal. This effect allows the Executive to “boast about reducing the public deficit without cutting anything at all,” the analyst concluded.
What we have is a tax increase, you know, that no one has voted for — Marc Vidal, investor
For the average citizen, this translates to the fact that, although their nominal salary has increased to compensate for inflation, their real purchasing power does not increase, but their tax bill does. Vidal summarised it with a powerful phrase: “The State collects more because you earn more euros, euros that, by the way, are worth less.”
The lack of deflation of income tax is a recurring debate in Spain. Autonomous communities such as Madrid or Andalusia have previously implemented adjustments to prevent inflation from raising the tax burden, but the central Government has not adopted similar measures at the state level. With the budget extension, this situation becomes chronic, with no signs of change in the short term.
The upcoming vote on the spending ceiling in Congress, although the Government considers it lost, will not alter this scenario, as the key, according to Vidal, lies in the European fiscal rules and the political decision not to deflate income tax. Meanwhile, taxpayers will continue to pay more taxes covertly, without any parliamentary vote or public debate on the measure.
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