The Airef (Independent Authority for Fiscal Responsibility) published a report this Wednesday updating its analysis of the factors driving tax revenue growth in recent years. In the report, it estimates that tax revenues reached €320 billion in 2025, breaking records once again. According to the fiscal supervisor’s forecasts, this represents a 9.5% increase in collection.
Another key finding of the document is that the Ministry of Finance has been able to collect an additional €9 billion since the pandemic by not adjusting IRPF (Personal Income Tax) for inflation. This is a new estimate by the Airef regarding the cumulative effect of increased tax revenue due to so-called “fiscal drag” (bracket creep) or the failure to “deflate” the tax brackets. The Government has consistently refused to apply this adjustment to all taxpayers, limiting its actions to reducing the lowest brackets only.
The Fiscal Authority has long categorized the failure to index (deflate) Personal Income Tax (IRPF) brackets as a discretionary revenue measure for the Tax Agency. Consequently, in its monitoring report on the Medium-Term Fiscal and Structural Plan (PFEMP), the independent body projects that the Treasury will collect an additional €1.8 billion annually through 2031 if the tax continues to go unadjusted for inflation.
AIReF also concludes that between 2019 and 2024, the tax-to-GDP ratio increased by 1.5 percentage points. If certain temporary tax cuts are excluded, the structural increase would reach 2.1% of GDP.
By tax type, AIReF’s findings show that IRPF revenues have grown due to improvements in both the quality and quantity of employment, as well as the increase in pensions and the aforementioned “fiscal drag” (cold progression). Income tax is the levy that has seen the greatest increase in weight relative to GDP.
VAT, on the other hand, has evolved differently depending on the fiscal year. The tax, which is closely linked to consumption and price trends, saw a slowdown in revenue in 2023 due to temporary tax cuts, particularly those on electricity and food. Corporate tax, for its part, fluctuated following corporate profits and price changes.
