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Fiscal Year 2020

2. The Personal Income Tax

personal income tax income reached 87,972 million in 2020, 1.2% more than in 2019. Behind this growth in such a negative environment are, on the one hand, the different activity support mechanisms (ERTE, aid to the self-employed) that made it possible to smooth out the loss of employment and, on the other, the increase in withholdings in the sector. public, both for salaries and pensions. In addition, the tax in 2020 was favored when compared to 2019, in which most of the refunds derived from the ruling that declared maternity benefits exempt were made. Together, this and other measures contributed almost 1.1 billion to the increase in income (without them the growth in collection would be reduced to zero). Other items also had good data, such as the result of the annual declaration and, although with a marginal contribution, withholdings for investment funds. In the rest of the income (withholdings from work in the private sector, installment payments from personal companies, withholdings for income from movable capital and leases) the decrease was a reflection of the general situation.

The gross income of households, which is the base of the tax, decreased by 0.9% in 2020. The most important income, those from work (salaries, pensions, unemployment benefits), increased by 1.3% thanks to the boost in public salaries, pensions and unemployment benefits (including here payments linked to ERTE ). On the other hand, other income (capital and business activities) fell sharply, showing the impact of the situation from the first moments of confinement; For the year as a whole, capital income decreased by 15.5% and company income by 10.7%.

Labor income grew by 1.3% in 2020, although with very different behavior depending on its origin, whether it was private salaries, public salaries or pensions. Private sector salaries suffered all the problems derived from confinement and the decline in activity. The fall was 5.8%, more pronounced in SMEs (-10.3%), with greater representation in activities most affected by the restrictions, than in Large Companies (-2.2%). Graph 2.1 illustrates the difference in the evolution of the different productive branches in 2020. The graph shows the variation of the wage bill in Large Companies and corporate SMEs in the main activities (the series can be downloaded at this link ). As can be seen, the most damaged correspond to those that are characterized by a smaller business size, highlighting the hospitality and catering industry.

Part of this reduction in the wage bill that occurred in the private sector was covered by the ERTE (the Public Employment Service -SEPE- was in charge of covering a fraction of the salaries that companies stopped paying). If the amounts transferred by the SEPE are added to private sector salaries, the fall in the wage bill would be reduced to around 2%. In Graph 2.2 you can see the cushioning effect that unemployment benefits had, among which the aid from ERTE is counted (the data can be found in Table 2.2 and in this link ).

Regarding the public sector, the salary mass grew by 5.9% in the year, slightly more than in 2019 (5.6%). The greatest growth occurred in the Autonomous Communities. (7.1%), especially in the second part of the year and concentrated in health and education. In the other administrations, growth was more moderate (5.3% in the Central Administration and 2.5% in the CC.LL.), although a rebound was also observed in the final stretch of the year; in the case of the Central Administration, as a result of the latest increases derived from the salary equalization process in the security forces. Graph 2.3 shows the quarterly evolution of the wage bill in the three administrations (this link contains detailed information).

Finally, the pension mass grew by 2.9%. The figure was lower than that of the two previous years (5% in 2018 and 4.2% in 2019) in which there were higher pension increases than usual, those approved in the 2018 Budgets that came into force. in July of that year. Graph 2.4 summarizes the evolution of the pension mass, differentiating the increase due to the increase in the average pension (2.4% in 2020) and that due to the increase in the pensioner population (0.5%).

Household capital income (furniture, rentals and capital gains) decreased by 15.5% (Tables 2.1, 2.4, 2.5 and 2.6). These incomes showed the shock caused by the stoppage of activity from the first moment. Although irregularly, capital income grew by 3.8% in 2019 and already contracted by 4.2% in the first quarter. After the low of the second quarter, losses moderated. Neither the intensity of the fall nor the trajectory were the same in each of the three types of income. In movable capital (-23.9% in the year) the impact was great in the first quarter and in the second the rents were almost half that of a year before, although part of this strong decrease was due to transfers between quarters of the distribution of profits of some companies. Precisely the decisions on the distribution of dividends were the main cause of the very negative evolution of these incomes. Only at the end of the year, and thanks to the advance payment of some remunerations to avoid the effect of the rate increase based on savings as of January 1, 2021, and due to the existence of extraordinary operations in the capitalization of insurance, the fall was substantially reduced. In leases, losses are estimated at 9.6%. These incomes were the most directly affected by the closures and the decline in activity, which was seen in the strong contraction of the second quarter (-23%), which gave way to more moderate but stable declines, around the 9%. Finally, capital gains, which fell 15% in the year, had losses of more than 20% in the central part of the year, to recover to a drop of 11.6% in the last quarter. It must be remembered that these incomes largely come from the sale of properties, an activity that was greatly affected throughout the year by the health and economic situation. Earnings related to investment funds, on the other hand, performed very favorably with growth of 14.3% during the year, which reached close to 40% in the final quarter.

Household income linked to personal business profits decreased by 10.7%. We must remember the high weight that these companies have in the sectors most affected by confinement and the limitations on mobility and meetings (around 50% of personal companies in non-agrarian branches are dedicated to commerce, hospitality and personal and leisure services). This led to a strong impact in the first fifteen days of confinement still in the first quarter (-8.3%) and, of course, in the second (-24.8%), stabilizing the fall in the second half in the environment of 5%.

The effective rate on household gross income increased by 1.1% (Table 2.1 and Chart 2.5). The increase was a consequence more of the strong changes in the internal composition of the tax than of the existence of regulatory measures; These did not significantly modify the tax accrued and, when they did, it was in a negative way. This fact is well appreciated in the withholdings for income from work and economic activities. The effective rate only grew a few tenths (0.4%; Table 2.3 and Graph 2.6; The evolution of the rate by salary brackets since 2001 can be found at this link), but if the details are analyzed, high rate variations are observed: 4% in salaries and 2.2% in pensions. In the first case it was a product, on the one hand, of the increase in the rate in the salaries of the AA.PP. and, on the other, the greater impact that the loss of activity had in sectors with lower salary levels and average rates. This fact, which is clearly seen when distinguishing between Large Companies (with an increase of 1.9% in the rate) and SMEs (+6.2%), hid the lower withholdings that occurred due to the drop in the rate itself. salary mass and because no withholdings will be made on part of it (that paid by the SEPE). In the case of pensions, the increase in the rate (+2.2%) contrasts with the previous two years with moderate increases due to the greater growth that occurred in the lowest pensions, but it was of the order of the increases that were registered before 2018.

The result of the fall in the bases and the rise in the effective rate was a personal income tax accrued practically the same as that registered in 2019 (+0.1%; Table 2.1). Without the estimate of the differential fee, the tax would be 0.6% lower than the previous year. As has been said, in terms of accrual, the regulatory changes (Table 1.5) barely had an impact, being reduced to the lower tax accrued by the measures aimed at entrepreneurs in modules and by the raising of the threshold in the taxation of lotteries.

Withholdings on income from work and economic activities grew by 1%, above the 0.6% of income due, as has been seen, to the increase in the effective rate (Table 2.3 and Graph 2.6). The growth is the same as that observed in salaries, although with a clear distinction between private (-1.8%) and public (8.1%). The small reduction in the private part is striking, which is explained by the aforementioned increase in the effective rate or, seen in another way, because the loss of wage bill occurred in the activities and employment categories that, due to their salary level, contribute less to the total withholdings. On the public side, on the other hand, the expansion of the wage bill was accompanied by the increase in the rate, which made the growth in 2020 even greater than that experienced in 2019 (6.6%). The same happened in pensions (5.1% in 2020 and 4.9% in 2019).

Capital withholdings decreased by 18.1% in 2020. It must be remembered that, in this case, in which the withholding rates are fixed, the divergence with the evolution of income occurs because not all of them are subject to withholding. For this reason, rental withholdings fall more than rents (-12.1% vs. -9.6%; It is expected that the impact of the crisis on the premises, whose rents are, mainly, those that are subject to withholding, will be greater than on the rest of the leases), and conversely on the withholdings from capital gains in investment funds that , as has been noted, had a positive performance in the year (14.3% compared to the -15% estimated for these gains as a whole). In withholdings on movable capital, most of them subject, the fall was the same as that of income (-23.9%).

Regarding installment payments, they decreased by 13.3%. These payments were affected by the regulatory measures, specifically those that allowed entrepreneurs in an objective estimate to adapt their returns (eliminating the days in a state of alarm from the calculation of returns and, in the fourth quarter, applying a general reduction of 20% and a special 35% for the activities with the most problems due to the health crisis), or move on to the direct estimate if this was more favorable to them. Its impact is estimated at 87 million. RDL 35/2020 consolidated these measures in the tax rate.

personal income tax income grew by 1.2% in 2020, which was 1,079 million more than in 2019. The increase in income is similar to the amount contributed by the regulatory and management changes (1,088 million), so that, without them, the growth in income would have been reduced to zero.

Most of these regulatory changes were inherited from previous years (Table 1.5). The greatest impact was derived from the returns for the maternity benefit that were made, fundamentally, in 2019, but other measures (extension of family deductions, lottery tax) also came from regulations approved before. Together these measures amount, in net terms, to 1,286 million. On the contrary, the measures approved in 2020 to facilitate compliance with tax obligations and reduce the tax for entrepreneurs in an objective estimate reduced income by 198 million (132 million for the deferrals and suspension of deadlines and 66 million for the reduction of installment payments).

The growth in income was based on withholdings on income from work and economic activities, which grew by 1.5%, with a very different evolution, as seen when analyzing income and the tax accrued, in the public sector and in the private sector.

Income from labor withholdings in the private sector decreased by 0.8%. This figure includes the amounts from deferrals granted in the first months of the pandemic and that were recovered throughout the year (rest of income in Table 2.3). The drop was not large compared to that observed in activity due to the impact of the ERTE on employment (workers remained in the company, although a part of their salary was covered by the SEPE) and the rise in the effective rate of salaries (due to the greater incidence of the crisis in sectors of activity with low salary levels). Precisely this different impact of the crisis on the different productive sectors helps explain the disparity between the slight increase in withholding income that was recorded in Large Companies (0.8%) and the 4.1% decline that was observed. in SMEs (including other income). In the AA.PP. Withholding income increased 7%. The behavior was similar to what these incomes had been experiencing in 2019 (the growth then was 6.5%) and this can be said for both salaries and pensions. In the first case, there was a rebound in the last part of the year due to the increase in withholdings from health and education, and due to the payment of the third tranche of salary regularization in the security forces. The final growth of 2020 in public salary withholdings was greater than 7%, with an increase of more than 5% in the wage bill and the rest due to the increase in the average rate. In pensions, withholdings grew by close to 6.5%, a slightly higher increase than in 2019 and with a different distribution: The average pension rose less (in 2020 there were no increases that occurred in 2018 and 2019) and the effective rate much more (3.5% compared to 2019 in which it barely grew because the lowest pensions benefited from greater increases ), compensating even for the lower growth in the number of pensioners (0.5%, 1.2% in 2019).

The annual declaration, not affected by COVID as it was the settlement of the 2019 financial year, also contributed to the growth of the tax. Specifically, the net results of the annual declaration increased by 1,366 million, although more than 1,100 were due to the higher extraordinary refunds for the maternity benefit made in 2019. In any case, the campaign was positive, with an increase in gross income of 4.5% despite the fact that the income that is normally behind this income (business and capital gains not subject to withholdings or installment payments) did not increase substantially. in 2019 (as you will remember, in 2018 they had reached a very high level, especially profits). In relation to the refunds (Table 2.9), eliminating the other refunds which include the extraordinary ones for the maternity benefit, the growth was 2.6%. The campaign passed without incident with a pace of completion similar to that of recent years. The only thing worth highlighting is the decrease in family deductions received in advance due to the lower deductions for mothers with children under 3 years of age who work outside the home. This deduction, in its advanced form, has been reducing since 2011, with greater intensity in times of loss or less job creation, but in recent years this decrease has not been transferred to the total of advance deductions because since 2015 Other categories were added (large families, disability). In 2020, the latter no longer grew at the high rates of the first years and, consequently, the group decreased significantly (in 2019 they had already done so, but only 3 million).

In the rest of the tax revenues, only withholdings for profits in investment funds improved compared to the previous year. The year began with strong growth that was cut short in the first months of the state of alarm; After the summer, the previous trend was resumed until the year ended with increases of more than 50%. For the year as a whole, the increase in income was 11.6%. In other concepts the situation was the opposite. Withholdings for movable capital income decreased by 20%, with negative rates since March. The falls observed in rental withholdings (-7.4%) and in installment payments (-10%) responded to the weakness of the activity, although in the latter case also to the reduction in income induced by the measures approved in favor of small businesses.

Finally, it should also be noted that 121 million were lost in the 2020 collection due to the advance of the settlement of the Allocation to the Catholic Church (Table 2.1 and 7.2). This settlement normally occurs in the first months of the following year (in this case it should have been in 2021), but in 2020 it was brought forward to December. The last time something similar happened was in 2011 (more information in this link ).