Pandemic in Spain causes number in highest income group fall for first time since 2013

by Lorraine Williamson
highest income group

The pandemic marked a turning point that meant the end of many trends. One of them is the decline in the number of taxpayers in Spain in the highest income group, i.e., over €601,000. 

After six years of uninterrupted growth, the number of wealthiest people in Spain fell to 11,113 in 2020. That is down 6.7% from a year earlier. But also the first decline since 2013, according to the latest data from the Spanish tax authority.  

After reaching a low point in 2013 as a result of the financial crash – with only 4,553 declarations of more than €601,000, following a drop of almost 24% between 2007 and 2008 – the number of the richest taxpayers grew at a record pace. In 2018 it surpassed pre-crisis levels, and in 2019 it reached an all-time high. Even though it fell in 2020, the level remains the highest since 2017.  

However, it is not possible to tell from the data how many of these taxpayers are millionaires. This is because there is no breakdown above €601 000. The statistics are compiled from tax return data and published with a two-year delay. This means that the latest available information, released on Monday, refers to income obtained in 2020 and declared in 2021. It includes the impact of the pandemic and the effect of government support used for damage limitation, such as Temporary Unemployment Trustee (ERTE) plans or extraordinary support for the self-employed. 

Total number of declarations increased 

The number of total returns increased by 2.9% in 2020 compared to 2019 to 21.6 million taxpayers. In the statistics of the tax authorities, tax returns are divided into 10 brackets. These are then differentiated according to the amount. The largest group is formed by the sum of the lowest half, up to €21,000. These taxpayers account for more than 60% of the total, with 13.1 million returns. Furthermore, this group has grown by 4.5% compared to 2019. The highest bracket, which groups together incomes above €601,000, represents only 0.05% of the total. 

Where do Spain’s richest live? 

The majority of the richest taxpayers are concentrated in Madrid – the only community to enjoy a 100% reduction in wealth tax – followed by Catalonia, with 5,176 and 2,624 taxpayers respectively. In both regions, there is a decrease compared to the period before the introduction of the directive. If this higher bracket is added to the previous one, from €150,000 to €601,000, there is also a decrease. The decrease is both in absolute terms, from 118,602 settlements to 114,507. And also as a percentage of the total, from 0.57% to 0.53%, compared to 2019.  

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Economic activity 

In the personal income tax statistics, the average income is also broken down by the type of economic activity. In 2020, the declared income for both employees and the self-employed decreased compared to 2019. After deducting contributions and other expenses, the first group earned an average of €22,609. This compares to the maximum of €23,171 in the previous year. The second group gave up an average of €13,643 almost 10% less than the previous year. In the case of self-employed people who pay contributions under the modular system, a system that can only cover a limited number of activities up to a maximum turnover, the fall was more than 45%, to €5,525.  

Stock market crash 

An indication of the fall in the number of wealthiest taxpayers can be found in the development of the stock markets and the fall in dividends during the pandemic year. The reason is simple and has to do with the composition of income, which varies greatly according to the segment of the population considered. Income from labour tends to be much more important for middle and low incomes. Whereas, financial capital has a much greater specific weight for the richest. 

2020 was a black year for stock markets and corporate profits: the Ibex 35, Spain’s main index, ended the year as the worst in ten years, posting a loss of more than 15%. The statistics from the tax authorities partly reflect this decline: for the richest taxpayers, the fall was greater, in the double digits, for income from capital – dividends, interest, etc. – and capital gains, compared to the previous year. – and capital gains, compared to income from employment. 

Millionaires in highest income group

Despite the downturn in 2020, stock markets are generally recovering quickly and all indications are that the richest will start growing again in the next edition of the tax return. The number of millionaires cannot be deduced from the Interest Service data, but according to the latest report from wealth management firm Capgemini, published in mid-June, it appears that the rich in Spain – in this case the millionaires and all the wealth they accumulate, apart from income – increased both in number and total wealth last year. 

Also read: Spanish government debt hits new record

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