2. The Personal Income Tax

In 2023 the income in the personal income tax totaled 120,280 million, which represented a growth of 9.9% and that, of the almost 16,500 million higher total income, 10,795 corresponded to I Personal Income Tax . Once again, the positive evolution of employment, added to the increase in average salaries and pensions and the consequent rise in the effective rate, were the main factors that explained the good performance of income. All these elements worked in favor of a high increase in withholdings for work income, limited, however, by the reduction in the tax on the lowest incomes (which meant a loss of income of more than 1,700 million). In addition to these withholdings, in 2023 the contribution of withholdings on movable capital also stood out, with a large increase thanks to the good performance of dividends and the recovery of income from withholdings on interest on bank accounts driven by the escalation of interest rates.

The gross income of households increased by 9% ( Table 2.1 ), exceeding the rate achieved the previous year by more than one point. The growth was higher than in 2022 in labor income, in movable capital income, in capital gains not subject to withholding and in company income, and lower than then in rental income and in profits from of investment funds. The private sector wage bill showed, for the third consecutive year, a notable increase, although it was less intense than the previous year. Income from public sources, on the contrary, grew more than double due to the greater increase in both the wage bill and the pension bill and unemployment benefits.

Labor income, the main component of household income, grew by 7.9% in 2023, a rate more than half a point higher than that achieved in 2022 (7.3%, Table 2.1 ). The behavior of its different components was disparate. Salaries increased by 7.6%, losing two points compared to the 9.6% recorded a year before ( Table 2.2 ), a consequence of the evolution of the wage bill in the private sector that it grew 8.3% compared to 11.4% the previous year. During the first half of 2023, these incomes maintained an increase similar to that at the end of 2022, around 8.8%, thus stopping the downward profile that had been observed since the beginning of the previous year, as a result of the slowdown in job creation. (Figure 2.1). During this period, the lower growth in employment was offset by the greater increase in average remuneration. However, in the second semester, a gradual moderation of the wage bill was again observed, as a lower increase in the average salary was added to the slowdown in employment. In Large Companies this slowdown was less intense than in SMEs (Graph 2.2).

For its part, the wage bill in the public sector increased by 5.6% (4.4% in 2022). Growth was relatively stable at around 6.5% until September, but in the last quarter there was a strong moderation (3.2%, Charts 2.1 and 2.3) when compared to the fourth quarter of 2022, which included the additional pay received then in compensation for the increase in prices (in 2023 there was also an update, but of a much smaller amount). The rise in the wage bill is explained by an increase in employment of slightly less than 2% and, above all, by the increase in average remuneration, estimated at 3.7%. The growth of these average incomes gradually moderated as the year progressed, being at 4.5% on average until September, but reducing sharply in the fourth due to the aforementioned comparison effect with 2022.

The growth of the public pension mass reached 9.4%, exceeding by 1.5 points the already high record of 2022 (7.9%) and thus linking two years of strong increases. It must be remembered that the 2023 rate is conditioned downwards by the sharp drop registered in January, when compared to the same month of 2022, which included the compensatory payment received then for the price deviation in 2021. If only the growth between February and December is considered, the increase was even greater, 11% ( Table 2.2 and Chart 2.4). As regards private pensions, they were reduced again, although to a lesser extent than in previous years.

Finally, with regard to labor income, unemployment benefits increased by 3.2% in 2023, after the two years of declines following the COVID crisis, due to both the greater number of unemployed covered and the increase of the average benefit. The level of these benefits (15,563 million) remains slightly above the average recorded in the 2014-2019 period ( Table 2.2 ).

It is estimated that the total of household capital income (furniture, rentals and capital gains) grew by 17.7% in 2023, four points above the increase observed in the previous two years (13.9% in 2022 and 13 .5% in 2021), and thus exceeding the weight that these incomes represented on the total gross income of households before the pandemic ( Tables 2.1 , 2.4 , 2.5 and 2.6 ). In fact, these incomes did not have a similar weight (10%) since 2009 (Graph 2.5).

In 2023, very different behaviors were observed between the different types of assets. Movable capital income explains a large part of the greatest growth in total capital income in 2023, increasing by 31.8% (29.7% those subject to withholding) and thus accumulating two years of strong increases (Graphs 2.6 and 2.7). All the components of these incomes present a positive evolution, although it is necessary to highlight the notable advance that income associated with interest on bank accounts experienced in 2023, as a consequence of the increases in interest rates, so that at the end of the year Its average level already exceeded that observed in 2015. Income linked to dividends also performed well, although below the increase observed in 2022.

Likewise, rental income, which grew by 8.8%, had a positive contribution to the increase in capital income. Growth was, however, more than four and a half points lower than a year earlier (13.4%, Chart 2.8). The loss of intensity in 2023 caused these incomes, which since 2015 were the ones that usually had the greatest weight over total capital income, to give up their position in favor of capital gains.

For capital gains, an increase of 17.1% is expected in 2023, which would mean an acceleration of 10 points compared to the 2022 record. The cause of this favorable evolution is found in the good performance of profits not subject to withholding, since profits linked to investment funds were reduced by almost 40%.

Regarding the income of personal companies, it is estimated that they grew by 10%, exceeding by almost two points the 8.2% observed in 2022 ( Table 2.8 ). The dynamism of these incomes slowed down as the year progressed, going from 12.3% in the first quarter to 8.1% in the last. Despite this slowdown, it should be noted that at the end of 2023 they continued to maintain growth rates two points above the average rate of the 2013-2019 period, which was around 6%.

The effective rate on household gross income increased by 2.8% (3.7% in 2022). Without the differential quota, the increase is estimated at 1.3%, an increase three and a half points lower than that registered a year before ( Table 2.1 and Graph 2.9). Higher salaries and average pensions explain the rise in the rate, which would have been higher if the rate reduction for the lowest incomes had not occurred. Furthermore, the fact that unemployment benefits, with almost zero average rates, were gaining weight in overall income, also pushed down the total effective rate.

The personal income tax accrued grew by 12% in 2023 after increasing by 11.9% in 2022 and 2021, thus chaining three years of high growth. Without the differential fee, the personal income tax accrued increased by 10.4%, as a result of the increase in the bases by 9% and the rate by 1.3% ( Table 2.1 ).

Withholdings from work and accrued economic activities increased by 10.2%, due to the growth in income (7.1%) and the higher average rate (2.8%, Table 2.3 and Graph 2.10). Withholdings linked to salaries, the main component of these withholdings, increased by 9.3%, thanks to the good performance of the wage bill (7.6%) and a moderate growth of the average rate (1.6%), which was was affected downwards by the decrease in the rate for the lowest incomes. The increase in the effective rate was similar in the private and public sectors, so the growth of withholdings associated with private salaries was higher than that observed for the public sector, in line with the evolution of the bases. Furthermore, rates increased less as the year progressed, which intensified the slowing profile of accrued withholdings. Within the private sector, the rate reduction had a greater impact on SMEs, so the slowdown was more intense in this group. In public pensions the rate increased by 7.5%, which, together with the increase in income, caused withholdings to grow by 17.6% in the year (close to 19% if January is not taken into account, atypical as indicated in the income).

Regarding withholdings on economic activities, its growth in 2023 was much more moderate than the previous year (2.9% compared to 10% in 2022) due to the negative evolution of sales by agricultural entrepreneurs and the lower progress of the gross income of professionals ( Table 2.3 ). For their part, installment payments increased by 8.1%, almost two points below the company's income as a consequence of the regulatory changes (increase in the percentage of expenses that are difficult to justify in the direct estimation modality and reduction in performance net in the objective estimate).

Withholdings on capital income grew by 18.1%, a high rate and similar to that achieved the previous year ( Table 2.1 ). The main cause of this evolution was the intense increase in withholdings on movable capital income (29.7%), which, after two years of large increases, reached levels that had not been reached since 2013. All components of these withholdings increased in 2023, although, as already mentioned, it is worth highlighting the sharp increase in withholdings derived from interest on bank accounts, as well as the good performance of dividends. Withholdings for leases, mainly for premises, rose by 6.3%, about four points below the rate recorded the previous year. For its part, withholdings derived from capital gains from investment funds fell by 39.1%, thus marking the lowest level in the series (231 million) since these withholdings were introduced in 1999.

The second largest contribution to tax growth was withholdings on capital income, which grew by 26.7% thanks to the good performance of dividends and the recovery of income from withholdings on interest on bank accounts.

Fractional payments from personal businesses also had a positive contribution to total tax revenue. Collection for this concept grew by 7.6% in 2023. If the losses due to regulatory measures are added ( Table 1.5 ), the growth would be almost 10%, which is the increase estimated for the income of these companies. Its profile throughout the year was, as happened with other variables linked to SMEs , a slowdown after a good start to the year inherited from the good results that characterized the entire previous year. In any case, fractional payments, which during the pandemic and in subsequent years have been affected both by the economic situation in the sectors where there is a greater presence of personal companies and by the multiple measures that have tried to soften its consequences, were in 2023 almost 40% higher than those recorded in 2019.

Income from withholdings on leases grew by 6.7%, showing a profile of gradual deceleration (they started the year with growth close to 8% and closed it with an increase of 5.5%). For its part, income from withholdings on capital gains in investment funds decreased by 44.7%, a greater drop than that observed in the accrued tax, as the good record accrued in December 2023 was transferred to the 2024 cash register.

Finally, it must be remembered that in 2022 what used to be the usual pattern of the annual settlement of the Appropriation to the Catholic Church was broken again. Said settlement was usually made in January for the outstanding balances of the declaration from two years earlier. However, the payment corresponding to fiscal year 2021, which should have been paid in January 2023, was brought forward to December 2022. This is why the returns for this concept in 2023 were about 230 million lower than those made a year before.

income in personal income tax increased by 9.9% (compared to 15.8% in 2022), more than two points below the rate achieved by the taxes accrued. The main reason for this divergence is that the latter include the estimate of the differential fee accrued corresponding to the year 2023, while the cash income includes the income and returns corresponding to the result of the annual declaration for the year 2022. In this case, although the positive quota increased by 7%, due to the growth of income not completely subject to withholding or payment on account (real estate income, income from business activities and capital gains), returns registered a notable increase, exceeding by almost 1.7 billion those made the previous year. Consequently, the net result was about 500 million lower than the previous year. Behind this result are the downward corrections of regional rates and the increase in family minimums and deductions also in the regional section of the tax, changes that represented a loss of income of 1,677 million ( Table 1.5 ). It must be remembered that withholdings are calculated with a general rate and that any change in the parameters of regional competition means a decrease in positive differential rates or an increase in negative differential rates.

Withholdings for income from work and economic activities grew by 11%, 12.6% in those from the AA.PP. and 10.3% in the private sector ( Table 2.3 ). The difference in the behavior of both sectors is determined by the strong increase in withholdings linked to pensions, which have grown by around 19% since March (in February they were compared to a month that had the last update payment). This increase occurred even despite the effect of the rate cut on lower pensions. This impact was also noted in SMEs whose income from withholdings grew by 7.7% (without the rate reduction the growth would have been 10.2%). In Large Companies the reduction was less significant (Graph 2.11), but enough to reduce income growth by one point (they grew by 11.7%, but without the reduction they would have increased by 12.7%). Finally, in withholdings derived from public salaries, the increase in 2023 was slightly more than 8%.