Spain To Hike Taxes Despite Pre-Election Pledge

by Ulrika Lomas, Tax-News.com, Brussels

03 January 2012

Having recently dropped the bombshell news that Spain will post an 8% fiscal deficit this year, up from 6% projected by the previous government, the incoming Spanish government, headed by Mariano Rajoy, is to introduce higher taxes from 2012 contrary to the party's pre-election pledge.

Rajoy's government said the previous government had incorrectly stated the extent of the deficit, and as a result the government has announced extra-budgetary measures to add to the previously-announced cuts in government spending. On previous projections, the government was to target some EUR16.5bn in savings to achieve a revised deficit target of 4.4% of Gross Domestic Product in 2012.

However, the latest announcement of a shortfall of 2% of Gross Domestic Product, or EUR20bn (USD25.9bn), has triggered crisis measures that threaten to exacerbate the protracted recession being experienced by the nation with its 23% unemployment rate.

The government has announced numerous tax hikes worth EUR6.2bn, for introduction in 2012, including income tax increases across the board, ranging from a 0.75% increase in the tax rate applicable on income of EUR9,500, to a 7% hike for those earning above EUR300,000. Savings income will also be subject to higher taxes under the proposals. Personal savings of up to EUR6,000 will be subject to a 2% rate; with additional rates of 4% on savings income up to EUR24,000 and 6% above this threshold.

The government has warned that these measures, alongside EUR8.9bn in government spending cuts, could compound the recession being experienced by the nation and significantly damage the nation's economic prospects for coming years.

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