The collection boom does not stop and gives the Government wings to increase spending without deviating from the deficit

The boom in tax collection that Spain is experiencing, encouraged by the strong pull of the economy in recent years and the so-called ‘cold progressivity’, is allowing the Government to draw on its checkbook and, at the same time, meet the fiscal goals promised to Brussels.

The latest budget execution report prepared by the Treasury reflects this reality well. Collection data until October show that tax revenues are growing at a rate of 8.3% year-on-year, 1.7 points higher than what was recorded at this time last year. At the same time, state public spending increases at a rate of 6.4%, driven by pensions, investment in defense or DANA.

Although everything indicates that the growth of the Spanish economy will slow down in 2025 (2.9% expansion is expected, compared to 3.5% last year), tax revenues are giving a small acceleration. Last year at this point, tax collection was growing at a rate of 6.6%, 1.7 points below what will be recorded in 2025.

Between January and October the State has collected 275,363 million euros —21,142 more than in 2024—, of which the majority correspond to taxes (218,543 million). A good part of this revenue boost comes from the reversal of the tax relief measures introduced in 2022 and 2023, such as the VAT reductions on the electricity bill.

The main protagonist in collections were once again taxes on income and wealth, among which personal income tax and corporate tax stand out. In this item, income increased by 12% compared to the previous year, which represents 11,066 million more. Specifically, personal income tax collection from the state section has grown by 17.2% (7.5 billion more), while corporate tax has grown by 6.7%.

Half of this increase in collection compared to last year is largely explained by personal income tax, a tax that has benefited from the growth of employment (there are more people working and, therefore, more people contributing) and salaries (increases pay personal income tax). But where the fact that the Government has decided not to adapt the tax brackets to inflation or salary increases, has caused a silent tax increase without the need to go through the Official State Gazette (BOE).

Revenue from taxes on production and imports (VAT, mainly) is also growing at a good pace. It does so by 6.8% year-on-year, the same record that was seen at this time last year. VAT has contributed 114,903 million so far this year, 7,293 million more than last year.

Spending slows, but grows at a strong pace

The strong increase in income (8.3% growth) has allowed the Government to draw on its checkbook in a context in which the pressure on public spending is strong. The disbursement of the central State has grown by 6.4% to reach 296,663 million euros, 17,784 million more than at this point in 2024.

A good part of these expenses are explained by three large items called to strain the country’s public accounts: aging, defense and the interests that must be paid for a high public debt that exceeds 100% of GDP. The item that is growing the most is transfers between public administrations, which include non-refundable payments and loans that the State makes to Social Security to cover the hole left by pension spending.

So far this year, 41,605 million euros have been transferred from the State to Social Security, 15.3% more than last year (5,518 million more). These funds, which come mostly from the payment of taxes, are used to finance pensions that are, by nature, contributory (that is, they are paid with contributions) and are no longer used for other items.

Regarding public investment (gross fixed capital formation), it is the second item that grows the most, with an increase of 3,166 million (32.3% increase in relative terms). Part of this increase is explained by the increase in spending on Special Weapons Programs, an item that has doubled from 527 to 1,082 million euros.

Also noteworthy is the greater expenditure on interest on public debt, an item that increased by 8.7%. So far this year, 29,176 million euros have been allocated to this item, 2,031 million more than the previous year. The fact that the maturing debt has to be replaced with a new one that is contracted at higher interests due to the rise in the official rates of the European Central Bank (ECB) largely explains this phenomenon.

The strong growth in income is allowing the public deficit to continue to be reduced, although spending is also increasing strongly. Until October, the imbalance between State income and expenditure amounted to 1.17% of GDP, 31% less than in 2024. If we also add the autonomous communities and Social Security to the equation, the public deficit in October amounted to 0.6% of GDP. In fact, if DANA expenses (4,362 million) are discounted, the deficit would fall to 0.35% of GDP, 63% below last year’s level.