- Tax collection fell significantly short of the budget plan last year.
- The main consolidation measures based on higher taxation did not bring the expected effect.
- The VAT shortfall points to weaker consumption and tax bearing limits.
- The 500 Club warns against running out of room for further tax increases.
The problem of lower than expected tax collection last year reveals the limits of the set consolidation model, which is based primarily on higher taxation. It also opens up the question of another form of consolidation. He pointed it out 500 Club in the current edition of the analytical report Kompas500.
The association recalled that although tax revenues increased by 2.3 billion euros year-on-year last year, they fell behind the budget plan for 2025 by up to 1.8 billion euros (-8%). Although the total revenues of the budget were lower than the plan by only 366 million euros, this is due, according to Club 500, to the fact that part of the shortfall was compensated by higher non-tax revenues, such as dividends or grants and transfers from the EU. He does not consider this a systemic solution, as these are resources that are largely disposable.
“The significant decrease in tax revenues compared to the plan is a strong signal that the measures on which the revenue part of the consolidation was supposed to stand – primarily the increase of the value added tax (VAT), higher corporate income tax rates and the overall tightening of the tax mix, did not bring the expected effect,” reviewed by Club 500.
He pointed out that VAT, which was supposed to be one of the main pillars of consolidation, shows a shortfall of almost 1 billion euros compared to the plan. That points to weaker household consumption, the cooling of the economy and the limits of tax bearing capacity. “Similarly, in the case of corporate income tax, the shortfall compared to the plan is more than 414 million euros, which shows that higher rates do not automatically guarantee a higher return – especially if profitability deteriorates, investment activity decreases or the pressure to optimize grows,” added the association.
Expectations were not fulfilled even in the case of the tax on financial transactions, the revenue of which was lower than the plan by 235 million euros, i.e. by 41%. According to Club 500, this can have two explanations – either the original revenue estimate was overestimated, or economic entities quickly adapted to the new tax by changing payment flows or optimizing behavior.
At the same time, according to the association, the shortfall in income will mean that the next consolidation will have to be even larger in volume than originally anticipated. “Thus, the fundamental question arises as to whether the space for further tax increases has been exhausted. If systemic changes on the expenditure side and measures supporting economic growth are not taken, the risk is obvious: consolidation will become increasingly painful and at the same time less and less effective.” added Club 500.
