2. Personal Income Tax

Income from Personal Income Tax grew 7.5% to reach 94,546 million. In the context of 2021, the increase is relatively small, but it must be remembered that this tax increased in 2020 thanks to the buffer that they raised public income (salaries of public pension schemes, transfers linked to ERTE and to aid for self-employed workers); Therefore, growth in 2021 was also more moderate. The strength of this figure is better visible if the comparison is made with 2019. In this case it is concluded that this tax was the one that contributed the most to growth compared to that year. Income growth was logically based on the good performance of household incomes, with all its components, except for earnings from movable capital, showing good results. SMEs had a prominent role in this general development, both in the salary and personal company benefits.

Gross household income grew by 5.9% (Table 2,1). Given the situation in 2020, the income that improved the most was the income that last year had a worse performance, i.e. income from the private sector (see Figure 1,15). On the other hand, public income, which in 2020 had served as support for household incomes, remained practically stable in 2021. Except for movable capital income and income from leases of premises, the rest of the returns were recovered sharply, leaving at the end of the year above the level they had in 2019.

Income from work, which is the main source of income in households, grew by 4.3% (Table 2,1). Wages made it 7.4%. The trend in the year, as a reflection of what had happened in 2020, was the uneven evolution in the private and public sectors. Private sector wages grew by 8.2%, particularly thanks to the good results of SMEs (15.1%,-12.4% in 2020), especially in the second half of the year. In Large Companies, growth was 3.4%, which compensated for the drop in 2020 (- 2.7%). In both cases, the wage increase in 2021 exceeded the rate of the 2019% in Large Companies and + 0.6% in SMEs; 0,8 + 0.7% Overall). Due to activities, the recovery was uneven since in 2021 there were still restrictions in some periods of the year that prevented full standardisation. Chart 2,1, which shows the change in the wage base between 2021 and 2019 by activity, illustrates this point well.

Public wages grew by 5.1% (2020% in 5.2). Throughout the year, the pace of growth was moderate as a result of the gradual absorption of the impact of healthcare and education contracts that took place in 2020 and of the increases resulting from the process of wage alignment in the security bodies. As a result of the above, unlike in 2020, the wage burden grew more due to the increase in employment and less due to the increase in average return, affected precisely by the entry of new employees with lower average remuneration. By administrations, they were, as in 2020, the Autonomous Communities. Those that recorded a higher salary increase, although the improvement was higher in the CC.LL. (Chart 2,2).

As for public pensions, the number of pensions grew steadily over the year by around 3.5%. Two and a half points were due to the rise in the average pension, which was due to the revaluation of the beginning of the year and, as is customary, by the incorporation of pensioners with average pensions higher than those already in the system. The other part of the growth came from the increase of 1% in the number of pensioners. Chart 2,3 compares these results with those of the previous 10 years.

Household capital income (furniture, leases and capital gains) grew by 12.6% (Tables 2,1, 2,4, 2,5 and 2,6). Despite growth, the level of growth that it registered before the pandemic was not recovered (Chart 2,4). As can be seen in the chart, it was not possible to reach the weight of these incomes within the household incomes, a percentage that it had grown since 2017 following the slow decline that led to the fall from the highs of the boom in the first decade of the . 2000

However, the evolution was very uneven in the different types of income. Movable capital income again decreased, 2.2% after losses of 19.7% in 2020. Compared to 2019, these incomes closed the year with a drop of 21.5%. Dividends, which are the most important returns in these incomes, have fallen back to levels prior to 2018, and somewhat similar it can be said of other assets, such as fixed income, which, dragged by low interest rates, have been emerging from the family portfolios. The result is a development like that shown in Chart 2,5.

Income from real estate capital suffered considerable losses in 2020 (- 6.1%), but recovered in 2021 (+ 7.5%, + 1% compared to 2019). Two trajectories are clearly distinguished, followed by housing leases and the one shown by the leases of premises, which are subject to withholding. The first fell in 2020 (- 2.7%), but in 2021 they resumed a growth rate similar to those observed before the pandemic (+ 8.4%; + 5.4% Compared to 2019). The latter, on the other hand, also grew in 2021 (+ 5%), but without being able to compensate for the sharp drop in 2020 (- 14.4%), so that they remained very far from the level of 2019 (- 10.1%). The weight of these incomes in household incomes, which are continually growing before 2020, grew again without reaching the previous levels (Chart 2,6).

Capital gains were, by contrast, the income with the best results in 2021: They grew by 31% (2020% had fallen). 12,2 Although its weight is small, it emphasised the exceptional increase in profits linked to investment funds (80% after the 12.3% growth in 2020). In the case of these incomes, the comparison with 2019 is almost irrelevant given that the trend that has followed in recent years, in line with the good results of 2021, these gains have reached their highest level since 2007, just as it happens with its weight within household incomes (Chart 2,7).

As regards the profits of personal companies (Table 2,8), their growth in 2021 was 20.6%, higher than the 14.6% decrease in 2020, with income in 2021 ending up being higher than in 2019 at 3%. The result is more remarkable because these companies are highly concentrated in activities such as transport, hospitality and personal and leisure services , which were particularly affected by the limitations on mobility in 2020 and which in 2021 had not yet recovered normal (it should be recalled that Easter was still celebrated with many restrictions). The improvement in income, both compared to 2020 and especially 2019, was basically an improvement in average return per company, as the number of entrepreneurs remained at levels similar to those prior to the pandemic.

The effective rate on gross household income increased by 3.2% (Table 2,1 and Chart 2,8). The origin of this increase is in three elements: Regulatory changes with the rate increase in the general base and savings for the highest incomes (2 points in the state rate from 300,000 euros in the first case and 3 points from 200,000 euros in the second case) and the modification of the limits in the reductions linked to pension plans; The increase in the type of pension (due, above all, to the usual effect of sliding towards higher average pensions by new pensioners who enter the system); And the loss of importance in 2021 of unemployment benefits, with average rates almost zero, and which in 2020 had led to a drop in the effective rate. The rate increase caused by these elements was softened because the contribution in the incomes of the households of the salaries of SMEs that, with lower average rates, pushed down on the effective rate, unlike what had happened the previous year.

Income tax grew by 2021% in 9.2 (Table 2,1). As we have seen, the growth of the base (household income) explains almost six points of this increase and the rest comes from the highest effective average rate. As for 2019, growth was 9%.

Withholdings on work income and economic activities grew by 7.1%, 6.7% if only those of work are considered (Table 2,3). In the latter case, the mass of remuneration (mainly salaries, pensions and unemployment benefits, including transfers of ERTE) increased by less, 4.2%. The rest contributed to the rise in the cash rate as a result of the increase in the rate of pensions (due, above all, to the entry of pensioners with an average pension higher than those who were already receiving it the previous year) and the loss of weight of unemployment benefits , of an exceptionally high amount in 2020 and with an average withholding almost equal to zero. In wages, the growth in withholdings was higher in the private sector (7.1% compared to 2020, 4.4% compared to 2019), despite the decrease in the rate due to the recovery of the salary burden in SMEs where the average rate is lower. In the public sector, wage withholdings grew by 5.8%, two points less than in 2020, with a very similar increase in the mass of wages (5.1% in 2021, 5.2% in 2020). In pensions, withholdings grew by 7.2%, below 8.8% in 2020. The moderation observed in this part of the withholdings is due to the irregular performance of private pensions in 2019 and 2020 (sharp decline in the first of these years and exceptional increase in the second). If only public pensions are considered, the increase in withholdings in 2021 is higher than that seen in 2020 (7.2% compared to 6.4% in the previous year), due, above all, to the increase in the mass of pensions.

Withholdings on capital income grew by 7.4%, but still remained below the levels reached in 2019 and even 2018 (Table 2,1). In withholdings on movable capital income, since there was no change in rates (the rise in rates on the basis of savings for high incomes will be specified in the annual tax return), the evolution is the same as that of the incomes: A drop of 2.2% in 2021, which is added to the drop of 20.5% in 2020. Compared to 2019, these withholdings are 22.3% below those of that year. For its part, the withholdings on leases, mainly from premises, increased by 5%, but this growth is insufficient to recover the levels prior to the pandemic (in 2021 the withholdings accrued were still 10.1% lower than those of 2019). Unlike the previous ones, the withholdings derived from capital gains from investment funds grew again in 2021 and also with unusual intensity (80%, 2020%). 12,3 Since these withholdings are in force, only four years (1999, 2000, 2007 and 2008) have recorded levels higher than those of 2021.

As regards instalment payments, they increased by 25.6%, a rate conditional on the comparison with 2020 affected by the different measures taken to mitigate the effects of the pandemic among companies that are included in the objective estimate method. However, if compared to 2019, payments in 2021 were 10% higher than those in that year, which gives an idea of the intensity of the recovery of SMEs, especially in the last stretch of the year.

Income from work withholdings in the private sector decreased by 0.8%. This figure includes amounts from deferrals granted in the first months of the pandemic and which were recovered throughout the year (rest of income in Table 2,3). The fall was not significant compared to the drop observed in activity due to the impact of ERTE on employment (the workers were kept in the company, although part of their salary was paid by SEPE) and the rise in the effective rate of wages (due to the greater impact of the crisis on sectors of activity with low wage levels). Precisely this different impact of the crisis on the different production sectors helps to explain the disparity between the slight increase in the income from withholdings that it was registered in Large Companies (0.8%) and the 4.1% decrease observed in SMEs (including the rest of income). In the public administrations Withholding income increased by 7%. The performance was similar to that of these incomes in 2019 (growth was then 6.5%) and this can be said for both wages and pensions. In the first case, there was a recovery in the last part of the year due to the increase in withholdings from health and education, and the payment of the third tranche of the remuneration adjustment in the security bodies. The final growth of 2020 in the public wage withholdings was higher than 7%, with an increase above 5% in the wage base and the rest due to the rise in the average rate. In pensions, withholdings grew by around 6.5%, slightly higher than in 2019 and with a different distribution: The average pension went up less (in 2020 there were no increases in 2018 and 2019) and the effective rate was much more ( 3.5% compared to a 2019 in which it barely grew because the lower pensions benefited from higher rises), even compensating the lower growth in the number of pensioners (0.5%, 1.2% in 2019).

As regards instalment payments, they increased by 25.6%, a rate conditional on the comparison with 2020 affected by the different measures taken to mitigate the effects of the pandemic among companies that are included in the objective estimate method. However, if compared to 2019, payments in 2021 were 10% higher than those in that year, which gives an idea of the intensity of the recovery of SMEs, especially in the last stretch of the year.

Income from Personal Income Tax grew by 7.5% (+ 8.8% compared to 2019). The figure is lower than the figure shown by the accrued taxes. The difference basically has two factors: The tax accrued includes regulatory measures (such as rate increases to high incomes) that affect the annual tax return and that , therefore, cash will take effect in 2022, and the last accruals will be posted between one year and the following year (in the 2021 cash is the poor results of the end of 2020, but not the good results of 2021 that go to 2022).

Growth in 2021 was based on four elements: The increase in work withholdings (particularly for SMEs), the decrease in refunds (including the assignment to the Church Catholic, whose liquidation in 2019 was announced at December 2020), the growth of the split payments of personal companies and the exceptional increase in withholdings on capital gains in investment funds. In 2021, income from withholdings on earned income and economic activities grew by 6.1% (7.7% compared to 2019). The increase was in the private sector and in the public sector (7% and 6.8% respectively), although it should be taken into account that in the public administrations. Last year it was also growing and that part of the private sector's withholdings in 2020 were posted in the rest of the income to be affected by the deferrals caused by tax measures to alleviate the situation of lack of activity of companies (if these amounts in 2020 the increase in the private sector would be reduced by one point and a half).

In the private sector, the highest growth was observed in SMEs, with income from withholdings growing 14.7% compared to 3.6% of Large Companies. The latter did not fall in 2020 due to the existence of some extraordinary income, and this made the rate not very high in 2021. In any case, compared to 2019, SMEs also recovered their position with greater intensity than Large Companies (5.4% in the former, 4.4% in the second). In this comparison with 2019, the sector change factor that has occurred in the last two years has to be introduced, reducing the importance of activities with wages and rates that are smaller than average. This factor has led to a growth in the withholding rate and, as a result, the withholdings exceed the level of two years ago, with more clarity than the salary rate (+ 0.7% compared to 2019).

In the income from withholdings of the Public Administrations, those from wages grew by 6.6% and those from pensions by 7.2%; In the first case, under 2020 and, in the second case, on the opposite. In wages the year began with a high growth rate, similar to that observed after the summer of 2020 as a result of employment in health and education. This impact (and a similar impact derived from the remuneration adjustment of the security forces) was blurred as the months passed and, except for some occasional increase, the trend was moderate. Unlike 2020, when growth occurred despite the drop in employment in the CVs. And in the Central Administration, in 2021 the final result of the year was, above all, due to the increase in employment, which also made wage increases and the effective rate moderate. In pensions, however, the pattern was relatively stable throughout the year, with increases in the environment of 7.1% since March, distributed in a balanced way between the increase in the number of pensions and the rate.

The second element that allowed the income to progress was the refunds made. Those linked to the annual tax return decreased by 4.6%. Most of these correspond to requests for refunds of the 2020 Income Tax Campaign, which, given the special circumstances of that financial year, decreased by 5.9% compared to the previous campaign. This is added to the fact that the way in which the annual settlement of the assignment to the Catholic Church was made was also outside the normal pattern. This settlement is usually made in January for the outstanding balances of the two years earlier tax return. However, the figure for 2019, which should have been paid in January 2021, was advanced to December 2020. The result was that in 2021 the amounts for this concept were lower than those of 2020 and therefore their negative impact on income was also lower.

In line with what has been said in other places in this report, the high growth in SMEs was also reflected in a significant increase in the payments in instalments of personal companies: 17.4% Compared to 2020 and 5.7% above 2019. Payments were affected by various regulatory measures in 2020 and 2021, although the higher impact (the increase in the overall reduction approved to at the end of 2020), it had an effect on the annual tax return (in fact, the decrease in income in this tax was practically the same as the estimated impact of that measure).

The last highlight in 2021 was the exceptional growth of the withholdings derived from capital gains in investment funds. In 2020 they had not had any bad results (only the withholdings on capital income that did not fall, even increased by about 12%), but in 2021 their increase was extraordinary: 86.2%. Never before had a level of 2021 (1,052 million) been reached. In the other capital withholdings, the situation was not so favourable. In withholdings on movable capital income, a growth of 7.4% was recorded, insufficient to compensate for the sharp drop of 2020 (- 20%), so income is still more than 14% below those obtained in 2019. And something similar can be said about the withholding of leases; In 2021, they were practically at the level of 2020 and therefore their income remains far from those of 2019 (- 7.6%).