Brussels Insists Spain Raises VAT and Energy Costs

• EU report says there is room to raise Spain’s reduced VAT rate
• They want Spain to raise tax on fuel too
• Spain’s economy minister says the changes made already are enough for now

A report from Brussels which has evaluated Spain’s efforts in complying with EU terms for accepting the recent bailout to clean up its banks is urging Spain to raise VAT – yet again – as well as increase environmentally related taxes, such as on fuel.

In addition to the above, the European Commission also wants Rajoy to continue with the controversial labour reform (which makes it cheaper and easier to lay off workers), pension reform and delay retirement age (already being implemented) – all in a bid to reduce Spain’s budget deficit.

Rajoy reported recently that his government had just missed out on reaching the EU deficit target of 6.3% of GDP – the deficit was 6.7% according to the Government. However, Rajoy’s calculations did not include the bailout money given to fund Spain’s troubled banks, which took the deficit up to 10.2% - as reported by Brussels.

In the report, the EU considers that obtaining the deficit target of 2.8% in 2014 will be “very difficult” for Spain, although it is satisfied that the financial sector reforms are on the right track and pressure on the banks can now be eased slightly.

Regarding VAT, which already increased in September last year from 18% to 21% for the general rate and from 8% to 10% for the reduced rate, Brussels claims that “there is still some margin to raise the reduced rate even further”.

The report indicated that VAT income and tax income generated from fuel were amongst the lowest in Europe.

Spain’s economy minister, Luis de Guindos, however, has ruled out – for the moment – any increase in VAT or taxes, despite EU recommendations.

In his speech, de Guindos reminded people that Spain already raised VAT, not that long ago, and also reclassified certain items and services so that they would be taxed at the top rate, and that “this is sufficient”.

As for increasing the cost of fuel, de Guindos said, “We are taking note: but that does not mean by any means that the Government is going to increase the tax on petrol.”

He went on to say that the recommendations made by Brussels are not obligatory and that the Government has already promised not to make any more adjustments until at least the end of the year. He did not comment on what would happen in 2014 and 2015, but said that it would depend on the economic situation of Spain next year and on the demands made by the EU.

Madrid’s central government has also been told to keep a closer eye on what the regional governments are spending by implementing the Budget Stability Law, which would alert the central government to any over-spending or digression from the established spending plans. Madrid was criticised in the report for dragging its feet in setting up an independent budget office – an EU demand. It is still in the preparatory phase and Brussels has warned that Spain needs to get a move on if the office is to play an efficient role in 2014’s budget exercise.

Despite the credit crunch, lack of consumer spending, high unemployment, Brussels is still insisting on forging ahead with severe austerity measures. De Guindos, on the other hand, is convinced that enough pressure has been forced onto the public already and that Brussels should relax their demands on Spain regarding the deficit, as results are starting to show from the measures and reforms already carried out.

Source: www.elmundo.es, www.20minutos.es, www.elpais.com