Spain Prepares for More Austerity

July 13, 2012 Taxation in Spain

Tax Hikes, Spending Cuts Announced in SpainMADRID – After months of debate and media speculation, the government of Spain has confirmed that the country will soon face increased tax rates and further decreases in public spending as the government attempts to reign in its ailing fiscal situation.

On July 11th the Prime Minister of Spain Mariano Rajoy delivered a speech to Parliament, outlining austerity measures which will be implemented by Spain in its continued efforts to bring the country’s budgetary shortfall within EU limits within the next two years.

The Prime Minister explained that Spain will cut its budget deficit by nearly EUR 65 billion by using a mixture of tax hikes and spending cuts. He concede that the measures will not be pleasant, but continued on to say that the tax increases are necessary because “… our public spending exceeds our income by tens of billions of Euros.”

The most significant change announced by the Prime Minister was a 3 percent hike to the country’s primary Value Added Tax (VAT) rate, bringing it up to 21 percent. The VAT rate on “basic goods”, such as foods and medicine, will be unchanged and will remain at 4 percent. The Prime Minister admitted that during his election campaign he had promised not to raise VAT, but said that he had no choice but to hike taxes in the country’s current economic situation.

Mariano Rajoy also confirmed that the government would cut tax deductions which are currently being offered to homeowners.

Amongst the cost cutting measures announced by the Prime Minister, some of the most significant changes were further reductions to government spending, cuts to the salaries of civil servants, closures of more state-owned companies, cuts to subsidies for political parties and labour unions, and an overhaul of the unemployment welfare system.

Photo by Mykel (Miguel Angel)