The maximum marginal rate of the Spanish Personal Income Tax (IRPF) exceeds the European average by more than 10 points. The section that taxes the highest incomes reaches 54% in Spain, while the average in the countries of the European environment is 43.3%. Spain is thus among the four countries that tax income the most in the last sections.
This is what the latest OECD reports and the Worldwide Tax Summaries of PwC. In Europe, only nine countries exceed the 50% barrier in the maximum marginal rate of personal income tax. Denmark (55.9%), France (55.4%), Austria (55%) and Spain (54%) have the highest personal income tax rates among European OECD countries in 2021. For their part, Hungary (15%), Estonia (20%) and the Czech Republic (23%) maintain the lowest maximum personal income rates.
The highest progressivity
On the other hand, the progressivity in the Spanish income tax is one of the highest in the OECD, with maximum rates of personal income tax that, depending on the autonomous community, reach 54%. This is the case of the Valencian Community, whose regional section causes this maximum marginal rate, well above the average of the European Union, which does not reach 40%.
Progressivity in the Spanish income tax is one of the highest in the OECD
In addition, this maximum rate is applied from a much lower relative level of income. Thus, while in the average of the countries of the European Union belonging to the OECD the maximum marginal rate applies from four times the average salary, in Spain it does so from only two and a half times the average salary.
This, together with social contributions, raises the Spanish tax wedge above the OECD average. The tax wedge –the sum of Social Security contributions and Personal Income Tax (IRPF)– in the OECD accounted for 34.6% compared to 39.3% in Spain, which positions our country in the group than countries that pay the most. Some countries that present lower labor taxes than Spain are Denmark –with a tax wedge of 35.2%– or Norway (35.8%).
According to OECD data, the fact that the tax wedge in Spain exceeds the average for developed countries is due to the social contributions paid by companies, which are significantly higher in our country. A) Yes, In Spain, Social Security contributions paid by companies account for 29.9% of gross salaryaccording to 2020 data, compared to the 16.3% average in the OECD, making our country the seventh out of a total of 37 analyzed with the highest social contributions by companies.
Penalty for high rents
The Indicator of regulatory tax pressure on wealth taxation, prepared by the Institute of Economic Studies (IEE) based on data from the American Tax Foundation, shows that the taxation of savings in Spain is 40.9% worse than the average of the European Union and 39% less competitive than the OECD average.
The OECD points out that the tax treatment of savings in Spain is one of the most harmful among advanced countries, so that, once the Wealth Tax is included, the marginal rates on savings exceed 100% in the case of Spain, since, unlike the tax regime prior to 1991 and the one in force in France at the time, in Spain the so-called tax shield is not absolute, but relative, to the extent that a minimum taxation of 20 %.
What’s more, there is no country in the EU-27 that has a Wealth Tax like that of Spain. In Europe, it is only present in Norway and Switzerland with rates significantly lower than in Spain, and in recent years Austria and Denmark (1995), Germany (1997), Finland (2006), Luxembourg (2006) have suppressed it. , Sweden (2007) and France (2018). The IFO Institute of Germany has recently estimated that the reintroduction of the Wealth Tax in Germany would entail a significant loss of net collection, since it would imply a contraction, in the medium and long term, of up to 5% of the national GDP.
For its part, in France, in the case of the Wealth Tax, it was estimated that the overall net loss on the collection as a whole could be double the possible income obtained from this tax, as a consequence of the contraction of the activity that would be generated
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