Spain Needs Tax Hikes

May 31, 2012 Taxation in Spain

Spain Needs Tax HikesMADRID – Raising VAT and the rate of the income tax in Spain could lead to improvements in the country’s ailing fiscal position.

At a a press conference held in Madrid on 30th of May, the governor of the Bank of Spain Miguel Angel Fernandez Ordonez said that Spain may not meet its own targets for tax collection for the current year, and is likely to see a rise in government spending in 2012 much higher than previously forecasted.

Spain is currently aiming to lower its budget deficit to 5.3 percent of the national GDP in 2012, and further decrease it to an even lower level of 3 percent in 2013. However, according to Miguel Angel Fernandez Ordonez, the task will be “tremendously arduous” due to the country’s ailing microeconomic situation and low levels of tax collections.

The governor warned that Spain’s unemployment rate is currently higher than was forecasted, and the government’s payouts to unemployment programs and superannuation are likely to be higher than planned, raising government spending beyond current targets.

In order to address the fiscal shortfalls in Spain, the governor suggested that the government should consider raising the value added tax (VAT) by the end of this year, and not in 2013 as is currently proposed. He added that investigations should also be held into the feasibility of implementing further hikes to income taxes, and making the proposed VAT increase permanent.

On the same day, the European Commission released a report on the economic situation in Spain, also calling for an increase to the VAT, and warning that unless urgent action is taken to address the budget deficit, the government could see its debts rise to 100 percent of the national GDP, up from the current level of 81 percent of the GDP.

Photo by Tomas Fano