Rajoy Sets Out Spain's Fiscal Plan

by Ulrika Lomas, Tax-News.com, Brussels

20 December 2011

Spain's new Prime Minister, Mario Rajoy, has promised additional tax benefits for small companies and business which hire new staff as the incoming centre-right government faces the onerous task of keeping Spain out of recession while accelerating budget deficit reduction efforts.

Under the plans, outlined in Rajoy's first speech to parliament since his landslide electoral victory last month, small companies which take on their first employee will receive a EUR3,000 (USD3,900) tax credit. Additionally, companies with a turnover of less than EUR5m per year will pay less tax.

Rajoy said that a raft of new fiscal measures will be approved by the cabinet on December 30. A comprehensive budget for 2012 will then be passed by the end of March next year. It seems that the vast majority of the budgetary savings needed to meet new deficit reduction targets will come from deep cuts in public spending rather than increases in taxation however, with Rajoy telling the lower house that it was inappropriate to raise taxes, especially on small companies, with the economy facing such difficulties.

The government needs to find some EUR16.5bn in savings in the upcoming budget to reach a revised deficit target of 4.4% of gross domestic product in 2012, provided this year's target of 6% is hit. However, despite analysts' approval of Rajoy's proposals, which include plans for reform of Spain's rigid labour market laws and a restructuring of the banking sector, most agree that this target is somewhat ambitious given non-existent economic growth and an unemployment rate exceeding 20% - the highest in the European Union.

Recommended