VAT revenue slows as consumer spending falls
VAT collection stops growing as consumption volume drops and public debt hits a record €1.54 trillion despite record revenue
English · Original discussion in Spanish · Published
VAT revenue cools as consumption falls
VAT revenue is losing momentum. The tax that best reflects an economy—it taxes every purchase, every coffee and every litre of petrol—has stopped growing at the pace of recent years, and the explanation is not in the rates: it is that people are consuming less. In 2022 the Treasury closed with record revenue; sustaining that upward curve required the cash register not to stop, and it has begun to stop. Consumption volume is falling in almost all sectors at a rate that, it is argued, is equal to or worse than that of 2007. The rise in prices disguises part of the collapse: more is invoiced for less product, and VAT ends up reflecting an activity that exists only on the price tag.
What is happening with VAT revenue
The difference between invoicing more and selling more is the whole story. When prices rise, revenue holds up for a few quarters even if units sold fall; it is the mirage that delays the diagnosis. But there comes a point when the consumer cuts back sharply: skimps on treats, switches brands, puts off purchases. That is when VAT stops deceiving.
Tourism presents itself as a lifeline. The problem is quality: some point out that the only thing rising is luxury tourism, precisely the kind that leaves the least wealth in the territory. The tourism that used to feed people for two or three months, not even that anymore. And industry, the cushion that softens consumer slowdowns, fell behind two decades ago.
The price of the shopping basket that no one fills anymore
The bag of snacks that used to be a treat now costs 3 euros. The two-litre bottle of soft drink is around 3 euros. The branded milkshake has gone from 1.20 to 1.80, and imported pizzas exceed 3.50 for two bites. The average ticket rises, the basket empties.
What is striking is not the price, but what happens in the aisles. Some describe the scene precisely: shelves full and no one taking anything. There is consumption measured in volume, the one that really pays VAT, falling while the value statistic holds up by pure inflationary inertia. Every cent of increase—five-cent rises are reported in food items from one week to the next—is one fewer customer in the queue.
Record debt while record revenue is beaten
The macroeconomic picture does not add up anywhere. Public administration debt grows 5.8% and reaches 1.54 trillion, a new all-time high around 113% of GDP. More is collected than ever in nominal terms and, even so, debt keeps rising. Someone pays the gap.
From there comes the argument of the Laffer curve, the one that was considered buried for years: cutting taxes can raise revenue if the rate was above the optimal point. Those who defend this thesis reduce it to a simple idea: a State that squeezes the taxpayer ends up receiving less, because the taxpayer stops generating the activity that is then taxed. The counterargument weighs: if consumption falls due to lack of disposable income and not due to excessive rates, cutting taxes only plugs the hole with more debt.
Pensions and civil servants: why the system does not add up
The pension system was born for people who died at 75 and had children. Today it coexists with early retirees at 60 who reach 90. The pyramid does not hold. The 8% rise in pensions does not pay for itself, and the money comes from those still contributing: low earners financing €2,000 pensions.
The asymmetry that irritates most is in the clases pasivas regime. A civil servant can retire at 60 with 30 years of contributions and 100% of their salary; a shop employee with 38 years of contributions would have to hold out until 67 to receive the same, and having contributed more. The technical requirements nuance the picture—100% of the regulatory base requires 35 years and a minimum of 15 in service—but the differential treatment stands.
The common diagnosis is that revenue comes from payroll, petrol and food, that is, from what no one can stop paying. When that also cools, there is nowhere left to turn. And when asked what to cut, the answer always gets stuck in the same place: no one wants to touch the spending that sustains their own.
VAT revenue is losing momentum. The tax that best reflects an economy—it taxes every purchase, every coffee and every litre of petrol—has stopped growing at the pace of recent years, and the explanation is not in the rates: it is that people are consuming less. In 2022 the Treasury closed with record revenue; sustaining that upward curve required the cash register not to stop, and it has begun to stop. Consumption volume is falling in almost all sectors at a rate that, it is argued, is equal to or worse than that of 2007. The rise in prices disguises part of the collapse: more is invoiced for less product, and VAT ends up reflecting an activity that exists only on the price tag.
What is happening with VAT revenue
The difference between invoicing more and selling more is the whole story. When prices rise, revenue holds up for a few quarters even if units sold fall; it is the mirage that delays the diagnosis. But there comes a point when the consumer cuts back sharply: skimps on treats, switches brands, puts off purchases. That is when VAT stops deceiving.
Tourism presents itself as a lifeline. The problem is quality: some point out that the only thing rising is luxury tourism, precisely the kind that leaves the least wealth in the territory. The tourism that used to feed people for two or three months, not even that anymore. And industry, the cushion that softens consumer slowdowns, fell behind two decades ago.
The price of the shopping basket that no one fills anymore
The bag of snacks that used to be a treat now costs 3 euros. The two-litre bottle of soft drink is around 3 euros. The branded milkshake has gone from 1.20 to 1.80, and imported pizzas exceed 3.50 for two bites. The average ticket rises, the basket empties.
What is striking is not the price, but what happens in the aisles. Some describe the scene precisely: shelves full and no one taking anything. There is consumption measured in volume, the one that really pays VAT, falling while the value statistic holds up by pure inflationary inertia. Every cent of increase—five-cent rises are reported in food items from one week to the next—is one fewer customer in the queue.
Record debt while record revenue is beaten
The macroeconomic picture does not add up anywhere. Public administration debt grows 5.8% and reaches 1.54 trillion, a new all-time high around 113% of GDP. More is collected than ever in nominal terms and, even so, debt keeps rising. Someone pays the gap.
From there comes the argument of the Laffer curve, the one that was considered buried for years: cutting taxes can raise revenue if the rate was above the optimal point. Those who defend this thesis reduce it to a simple idea: a State that squeezes the taxpayer ends up receiving less, because the taxpayer stops generating the activity that is then taxed. The counterargument weighs: if consumption falls due to lack of disposable income and not due to excessive rates, cutting taxes only plugs the hole with more debt.
Pensions and civil servants: why the system does not add up
The pension system was born for people who died at 75 and had children. Today it coexists with early retirees at 60 who reach 90. The pyramid does not hold. The 8% rise in pensions does not pay for itself, and the money comes from those still contributing: low earners financing €2,000 pensions.
The asymmetry that irritates most is in the clases pasivas regime. A civil servant can retire at 60 with 30 years of contributions and 100% of their salary; a shop employee with 38 years of contributions would have to hold out until 67 to receive the same, and having contributed more. The technical requirements nuance the picture—100% of the regulatory base requires 35 years and a minimum of 15 in service—but the differential treatment stands.
The common diagnosis is that revenue comes from payroll, petrol and food, that is, from what no one can stop paying. When that also cools, there is nowhere left to turn. And when asked what to cut, the answer always gets stuck in the same place: no one wants to touch the spending that sustains their own.
Also available in: Deutsch
Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (104 replies).
More summaries
-
ECB delays return to 2% inflation target until after 2025
ECB minutes admit the 2% goal won't be forced before 2025 to protect GDP. Rising food costs erode savings' purchasing power.
-
Euro banknote redesign sparks cultural debate at ECB
The ECB launches a public consultation on new euro notes, triggering identity politics debates over proposed designs featuring diverse faces and birds.
-
Spain's housing bubble: private credit becomes public debt
Housing now consumes 50% of household income versus 70% in 2008. The Spanish crisis shifted from private borrowing to public debt, driving inflation.
-
Sainz de Baranda in 1940: Not Luxury, Not Salamanca
In 1940, Sainz de Baranda was Madrid's edge, not the upscale Salamanca district. Mari Carmen’s flat wasn’t Móstoles either; her family arrived in 1957.
-
Alsa and the executive profile: the row putting subsidised business in the spotlight
Alsa's managing director defends diversity as a business driver while his company in Spain lives on public concessions and subsidies. The debate is on.
-
Spain's internal devaluation: the adjustment that saves the debt and kills the future
In 2012 Spain chose internal devaluation to pay off its external debt. The adjustment works, but it drives out talent and sinks the country's productivity.