The silent impoverishment: more work, less income, higher taxes

More than fifteen years after the outbreak of the financial crisis, Spanish households still haven't regained the purchasing power they had in 2008. This is one of the most relevant conclusions of the report published by Funcas. It confirms that families' real net income remains below pre-Great Recession levels. However, at the same time, the tax burden is at historic highs.

The situation is explained by a phenomenon identified as "cold progressivity," meaning the lack of adjustment of personal income tax (IRPF) to inflation. This causes taxpayers to pay more taxes without a real increase in income. According to the data analyzed, the tax burden index went from 100 in 2008 to 114.4 in 2024. In contrast, real net income barely reached an index of 95.7. Households not only earn less in real terms, but they also bear a higher tax burden than they did 17 years ago.

The tax burden is especially reflected in personal income tax (IRPF) and value-added tax (IVA). Between 2021 and 2024 alone, households have assumed a total extra cost of €438 through IVA. Meanwhile, the average IRPF rate has risen from 12.7% in 2019 to 14.4% in 2024, driven by increased employment and the lack of bracket updates. Revenue, far from moderating, grew by 8.1% in 2024, which means an additional €21.167 billion.

Hopefully it was only a tax problem

But this deterioration isn't only fiscal. According to warnings from Moody's agency, the stagnation of per capita GDP reveals underlying structural problems. Since the 2008 crisis, Spain has stopped converging with the economic levels of the European core. Per capita income remains stagnant and Spain is now at levels comparable to those of 1999. The most repeated explanation by analysts points to two key factors: low productivity and excessive dependence on low value-added employment.

This diagnosis is compounded by a relevant demographic element: strong population growth through immigration. Recent reports, such as the one published by Círculo Cívico de Opinión, indicate that massive migratory flows have contributed to diluting per capita GDP and containing wages in low-skilled sectors. This phenomenon, combined with a fragile labor market and a growing tax burden, worsens the loss of purchasing power among vulnerable households and young people.

Where are we going?

The direct consequence of this model is an increasing difficulty in building up capital. In the absence of affordable housing and with little capacity to save, disposable income is directed almost exclusively to basic consumption. Meanwhile, housing prices continue to rise far above incomes. This limits the asset accumulation of new generations and worsens intergenerational inequalities:

As of today, the long-term outlook isn't optimistic. According to Funcas, if the current pace of real income growth is kept, it will take several years to reach 2008 levels.

If no tax reforms are introduced to adjust IRPF brackets to inflation, the erosion process will be cumulative. The pressure on middle and lower incomes will keep growing, consolidating an economic model in which more taxes don't equal more economic capacity.