Spain Increases Taxes to Tame Deficit Amid Recession

Discussion in 'Wall St. News' started by piggie2000, Sep 26, 2009.

  1. this is what happens here as our deficit is so great

    Spain Increases Taxes to Tame Deficit Amid Recession (Update1)
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    By Emma Ross-Thomas

    Sept. 26 (Bloomberg) -- Spain will raise value-added tax and levies on savings as the government seeks 10 billion euros ($14.7 billion) to tame one of the euro region’s largest budget deficits even as the economy is still mired in recession.

    Value-added tax will rise to 18 percent from 16 percent, and the reduced rate will climb one percentage point to 8 percent on July 1, 2010, Finance Minister Elena Salgado said. The central government’s deficit will be 5.4 percent next year, tighter than a 5.7 percent estimate in June, and the overall deficit will be 8.1 percent, compared with a previous forecast of 8.4 percent.

    Tax on savings will also increase, to 19 percent on the first 6,000 euros and 21 percent for the rest, and a 400-euro annual rebate for all taxpayers will be scrapped. Of the planned 10 billion euros, 6.5 billion euros will be raised in 2010.

    Even as the Spanish economy remains mired in a recession and may take longer to recover than the rest of Europe, Spain’s government is among the first to raise taxes as it seeks to control a ballooning budget deficit that has increased its borrowing costs. The government is boosting welfare benefits at a time when the highest jobless rate in Europe is draining public coffers, and the Organization for Economic Cooperation and Development expects Spain will run the euro region’s second- largest deficit after Ireland this year.

    Ireland, which unlike Spain had to bail out its banking sector and faces an even deeper economic contraction, raised taxes in April in an emergency budget. Finland plans to increase value-added tax by 1 percentage point on July 1 next year.

    Stimulus Measures Remain

    European policy makers including EU Economic and Monetary Affairs Commissioner Joaquin Almunia have said it is too early to implement strategies to end extraordinary fiscal and monetary policies. Spain will continue its stimulus efforts next year.

    Standard & Poor’s cut Spain’s top AAA credit rating in January and the extra interest that investors demand to hold Spanish debt rather than German equivalents is 51 basis points, four times more than it was at the start of 2008. The extra interest, or spread, has come down from 128 basis points in February, a record in the euro’s lifetime. Moody’s Investors Service rates Spain Aaa and said Sept. 9 it was unlikely to cut that rating.

    Debt will amount to 62.5 percent of GDP, Salgado said. Spain’s debt burden was 40 percent of GDP in 2008, compared with 69 percent for the euro region overall. This year’s public- sector deficit, forecast at 9.5 percent, will be the widest since at least 1980, according to Finance Ministry data that don’t take into account a change in methodology in 1995.

    Salgado maintained forecasts for the economy to shrink 3.6 percent this year and 0.3 percent in 2010.

    Low Rate

    At 16 percent, the Spanish standard rate of value-added tax was one of the EU’s lowest after Luxembourg and Cyprus, according to the EU statistics office. Spain’s overall tax burden, or revenue as a share of GDP, will rise 1 percentage point, Salgado said, and remains below the EU average, which Eurostat estimates was 39.8 percent in 2007.

    The draft budget will be presented to parliament next week, where the government doesn’t have a majority and will have to secure the support of smaller parties to get the bill approved. Parliament has until the end of the year to pass the bill.
  2. Without a doubt....

    VAT is coming to the US....


    No govt. is willing to contract....

    This will be to their own demise....

    As will the US ....
  3. The US has been detroyed by a single generation. VAT will only make things worse and destroy US competativeness.
  4. This is the "power elite" destroying Western society. A tax increase in an economic downturn is economic suicide!!! This is the "race to the bottom."

    Western societies are being asked to compete with workers in places that don't have potable water, respectable health care, adequate food, etc. Western societies should create a "standard of living" tax that taxes imports based upon the standard of living of where the product or service is being imported from. For example, if a company wants to import into a Western country a car from a country that has a high infant mortality rate...200% tax on the product - or whatever tax would make it so that the price for the Western product was comparable. Company B wants to import an oven from a country that has a high malnutrition rate...300% tax on the Western equivalent is comparably priced.

    With the way it is working now, workers in the Western world will have to DECREASE their standard of living...just as the power elite want it...can't have competition from the damned upwardly mobile middle class you know!

  5. PrimeX

    PrimeX Guest

    Not a bad idea. Though it would create sharply increased inflation seeing as we import far more than we export. Much of it from countries whose standard of living would demand inclusion in this sort of tax code.

    Just have to work that niggle out.
  6. clacy


    The leftist solution to everything is to raise taxes. Unfortunately adding to the VAT will only reduct commerce, thereby making slowing their economy even more.

    You would think that maybe it would occur to someone that goverment spending must be reduced in order to curtail deficit spending, rather than just raising taxes.

    Here it comes .....

    Soon...the US will enjoy "VAT "pleasure...

    V ertical

    A scent

    T o nowhere

    To be sure Obam will find a way to call it something other than a tax....

    It will have a "program" name....

    Let's see....

    The "Obam Road To Success Tax ' ?

    ORTS ?
  8. No. It only looks like that when "things" get out of control and go parabolic.

    US Government has been running excessive deficits since FDR.... both parties.
  9. How about "Future Affluence Road To Success".. or FARTS?
  10. Too bad it isn't only the government... the citizens get all hosed, too. :mad:
    #10     Sep 26, 2009