The administrative division of the Basque Country does not make it easy to talk about taxes. In the Northern Basque Country, taxes are set by French regulations and in the South the situation is even more complicated. Each territory has competence to establish direct taxes: Personal Income Tax (IRPF), Wealth Tax and Corporate Tax mainly. Indirect taxes, however, are regulated by the State and grouped by the Haciendas Forales and the Hacienda de Navarra. In Hego Euskal Herria we therefore have four own estates: Hacienda de Navarra and Haciendas Forales de Bizkaia, Araba and Gipuzkoa.

Regression in progressivity

Direct taxes are those that affect all people and are taxed according to their characteristics: income obtained and their wealth. The best known direct tax is income tax. It is a progressive tax, that is, the more the rate to be applied increases. Indirect taxes, however, tax use or consumption. Value Added Tax (VAT) is the most common tax and is paid for the consumption of a product or service. The general rate is 21% but there are goods with reduced (and super-reduced) rates, especially the most basic. The fact is that all people pay the same VAT rate, whether rich or low income.

The same applies to fuel taxes. These taxes are therefore not progressive at all. The current Spanish tax system, implemented in 1977, focuses on progressivity, but has lost progressivity in recent decades. As long as direct tax rates are maintained or reduced, taxes such as VAT are increased.

In 2021, the haciendas of Hego Euskal Herria raised more revenue in indirect taxes (10.188 million euros) than in direct taxes (9.828.4 million euros). In other words, more was collected through non-progressive taxes. There is therefore no tax justice.

In other countries the tax system is more progressive. The OECD data clearly explain this. The Haciendas of the Southern Basque Country collect 0.96 euros for each euro collected by indirect taxes. This proportion is 1.25 in Germany and the European average is 1.15. So our haciendas have work to achieve progressivity.

But the problem lies in competences. While they have the capacity to regulate direct taxes, the indirect taxes are established by the Government of Spain and collected by the haciendas of the Basque Country.

Corporate tax is losing weight

From the analysis of the data of the haciendas of the Southern Basque Country, it is worth noting the loss of importance of Corporation Tax. In 2011 it accounted for 9.4% of total revenue. Ten years later, the profit share of companies fell to 7.3%. This loss already existed.

In the case of Bizkaia, the share of corporate tax in 2003 was 11.3%. While corporate contributions fall, taxes on workers and on consumption rise.

Tax pressure below Europe

Tax pressure means a comparison of a country’s tax revenue with the Gross Domestic Product. Although in the 1980s the Basque Country enjoyed the highest pressure at the state level, it is the community with the lowest presence today, together with Navarre. The tax bill itself does not mean anything. If the collection serves to meet the needs of society and maintain the welfare state, it can be considered good.

The fact is that public services have worsened considerably in recent years. However, Basque administrations, far from transforming the tax system, tend to increase indebtedness. Since 2008, debt has risen from 1% to 15% of GDP and the debt burden must be borne by all citizens.

Regarding data from Spain, the difference with the most advanced European countries stands out. In 2019 the tax burden in Spain was 34.6%, while in France it was 45.4% and in Germany it was 38.8%.

And the difference with the countries of the North that have often been used as a welfare model is also evident: 46.3% in Denmark and 42.9% in Sweden. This difference can be attributed to the weight of the underground economy in Spain, and it is true that in recent years the gap has narrowed slightly. The difference, however, is clear.

Need for new taxation

The tax system must be a tool for tackling societal challenges, which requires adapting to an increasingly changing situation.

In these times of digital and ecological transition, a reflection on the new tax model is increasingly needed. Many proposals on green taxation have been put on the table in recent years. Reducing electricity taxes, imposing waste taxes and incineration, increasing fuel taxation, establishing access tolls for cities and changing registration taxes are some of the measures under consideration. Most proposals seek to pay more to the polluter. They also call for the establishment of a tax system based on income level, which reflects the progressivity in fines and taxes.

Digitalizations and the challenge of industrial robotics are also on the table. Taxing robots or designing productivity taxes are alternatives that are already being studied. Digitisation will involve not only the loss of jobs, but also the reduction of revenue, which will require the redesign of taxation.

It is clear that fiscal policy is one of the fundamental pillars of the country model. From the point of view of social justice there is something to change and from the point of view of the ecological transition there is also an interesting and profound debate.