Spain's 2010 Budget Sees Tax Rises

by Ulrika Lomas, Tax-News.com, Brussels

29 September 2009

In the grip of recession, and desperate to reduce its soaring budget deficit, the Spanish government has recently announced that it’s 2010 austerity budget contains almost EUR11bn in proposed tax increases.

From July 1 of next year, the government aims to increase the standard rate of VAT from 16% to 18%, and to increase the reduced VAT rate currently applied to services and food production from 7% to 8%.

The government also plans to abolish the annual income tax deduction of EUR400 accorded to every employee, and to increase the tax levied on capital gains over EUR6,000 from 18% to 21%.

Forecasting a 2010 budget deficit of around 8.1% of GDP, the government is hoping that the new budget will help to significantly reduce the shortfall, and that the measures will demonstrate its commitment to bringing the deficit within the target 3% of GDP by 2012, to honour its EU commitments.

However, the government’s highly controversial plans to increase taxes have provoked intense criticism from the opposition, which warns that raising taxes at this critical time will merely serve to delay Spain’s exit from recession.

The government’s 2010 budget bill must now be approved by parliament.

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