The economic climate

The economic environment in which tax revenues were obtained was inevitably determined by the outbreak of the pandemic, the lockdown and the limitations on mobility and activity present throughout the year. The best way to see how all this manifested itself is Graph 1.1, which shows the variation in activity measured through the daily domestic sales data of the companies in the VAT Immediate Information System (SII) . As can be seen, the immediate consequence of the lockdown decreed on March 14, 2020 was the sharp drop in sales to rates below -35%, declines that in some activities reached -100% for a long period (see in this regard Information Note 5 ). The abruptness of the fall is even blurred in the graph by showing the series as a 28-day average to avoid the enormous irregularity of the daily series.
 

Following the low reached in mid-April, a recovery process began which developed with notable intensity in the first weeks until it stagnated somewhat, first in August and, more clearly, in the following months. Only in the last days of the year was there a rebound that seemed to bring the rate closer to zero. In any case, as can be seen in Chart 1.2, the entire year remained below 2019 levels, a situation that still persists in the first quarter of 2021.

All indicators of economic development were consistent with this profile. GDP in real terms decreased by 10.8% in 2020. The year-on-year rate for the first quarter was already negative (-4.3%) and the low for the second quarter represented a decline of 21.6%. The stabilisation in the second half of the year was followed by an average decline of -8.7% in the third and fourth quarters. In the aggregates most sensitive to confinement and restrictions, the trajectory was even more pronounced. This is the case of domestic consumption expenditure, with falls of close to 16% in the year, 30% in the second quarter and 13.5% in the second half of the year. The employment also followed this pattern, despite the difficulties of measurement due to the application of the ERTE. Approximated by the number of full-time equivalent employees, which is the most commonly used indicator in the context of National Accounting, employment decreased by 7.5% with a drop of 18.5% in the second quarter and ending the year at -5.2%. Given the circumstances, it may be more appropriate to use the evolution of the number of hours to analyse the work factor, a figure not affected, like the previous indicator, by the calculation of the average full-time working day, which is difficult to define in 2020. In this case, the fall is greater, 10.4%, and more consistent, at least in the first two quarters, with the behavior of GDP. In any case, there is also a strong recovery after the low and a certain stagnation in the second half of the year.

The sales reference indicators constructed with tax information reproduced this pattern of behavior in the year, with differences in the various indicators derived from the greater or lesser presence of SMEs, companies with greater representation in sectors most affected by restrictions on activity. As can be seen in Chart 1.4, in the Large Companies and corporate SMEs the sharp drop in activity resulted in the loss of around 25% of the turnover they had a year earlier in the second quarter. As the most severe measures were relaxed, these losses moderated. In June and July, the recovery was strong, but the trend stabilised from August onwards, and only from November onwards were new improvements observed, although these were insufficient to achieve positive rates. The profile, although similar in all companies, is more pronounced when SMEs are included in the group, with a greater weight in productive branches such as hotels, restaurants, commerce and leisure services, whose sales fell much more than the whole (more details can be found in this link ).

The employment indicators, both the number of recipients from the declarations of withholding taxes from work and the affiliates to Social Security , also showed a sharp fall in the second quarter and a subsequent recovery (Chart 1.5). When it comes to approximating employment behaviour, both indicators face the drawback derived from the effect of ERTE. Workers covered by ERTE remain within the company's workforce, in one case, and registered, in another, regardless of the percentage of the working day they are working. This also affects the calculations of productivity or average remuneration, which are also affected by the restructuring of employment resulting from the loss of activity and which, being more intense in certain sectors, distorts the aggregate estimates.

On the nominal side, prices also suffered the consequences of confinement and restrictions. In the GDP deflator the effect was not significant, just a moderation of growth of a few tenths compared to last year (Chart 1.6), but in the aggregates most sensitive to the situation the impact was relevant. The private consumption expenditure deflator, for example, grew by only 0.2% in the year compared to 1% in 2019 and 1.5% in 2017 and 2018. And the same could be seen in the CPI. Its year-on-year rate was negative since the second quarter (Chart 1.7), especially due to fuels, which were severely affected by mobility restrictions. Stripping out these and other volatile components, the core CPI, which measures the trend in consumer prices, maintained growth in the first half of the year of 1.2%, slightly above the previous year, but corrected in the second half, ending the year with a rise of 0.4%.

Given the evolution of real variables and prices, the macroeconomic aggregates most closely related to income, domestic demand in nominal terms and employee compensation, performed very negatively. The first decreased by 10.7%, while the second decreased by 5.4% (Chart 1.8). This difference is relevant for the subsequent analysis of bases and taxes because it reflects, albeit incompletely, the compensating role of income from the public sector (in this case salaries) which meant that in 2020 income had better results than expenditure. As will be seen in the following sections, in addition to public salaries, pensions and unemployment benefits (including transfers from ERTE) made it possible to reduce the impact of the crisis on income. Both pensions and benefits are not directly included in the two previous aggregates, which only include expenditure and a portion of primary income but not the income generated by redistribution.