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Spain's Montoro Defends 2013 Budget

by Ulrika Lomas,, Brussels

17 December 2012

Spain’s Finance Minister Cristobal Montoro has recently defended the country’s 2013 general state budget in the Senate, designed to reduce the public deficit by containing public spending and increasing tax revenues.

By demanding a greater effort from Spanish citizens, the budget provides for the right formula to shorten the economic crisis, Montoro said.

Montoro insisted that it is precisely as a result of the policies pursued by the government that value-added tax collections are expected to have risen by 11.5% in November compared with the same month last year.

As part of the government's austerity measures, VAT was increased from 18% to 21% on September 1, 2012. The 8% reduced rate was increased in the same date, to 10%.

During the course of his speech to the Senate, Montoro reiterated that the aim of the 2013 state budget is to exit the crisis as soon as possible. While acknowledging that it is a difficult time, Montoro underlined the need to send out signals of confidence to the whole of Spanish society, and to emphasize that next year will be the last year of crisis and recession.

According to the European Central Bank’s latest forecast, no eurozone country will be in recession in 2014, Montoro observed.

Underscoring that the reduction of the country’s public deficit must remain a top priority, Montoro warned that failure to reduce the deficit in accordance with the path set would be to prejudice the possibility of further funding necessary for Spain to exit the economic crisis.

The Spanish government said back in October that it expects to collect more from the new tax measures contained in the draft 2013 budget than originally anticipated, although the revised figure will only make the merest of dents into the country's fiscal problems.

Spain’s tax hikes in 2013 have now been estimated at EUR4.55bn (USD5.86bn), EUR170m more than initially anticipated. Under the plans, about 70% of the additional tax levied would go to the central government while the remaining 30% will be hived off to the regions to tackle the local authority deficits.

The government expects to collect EUR2.4bn more in corporate taxes due to the tightening of depreciation rules, EUR800m with the introduction of a tax on lottery winnings, and EUR1bn following the tax hikes on capital income.

Despite the upwards revision of the tax revenue figures, the International Monetary Fund says that the budget deficit will reach 7% of gross domestic product this year and 5.7% next year, overshooting agreed targets of 6.3% and 4.5% respectively.

Following a cabinet meeting on September 27, it was announced that budget measures for next year will seek to raise almost EUR40bn from public spending cuts and increased revenue. Proposed tax measures include reducing depreciation allowances by 30% in 2013 and 2014, taxing capital gains on assets sold within one year of purchase as income at progressive rates, and subjecting lottery winnings in excess of EUR2,500 to a 20% withholding tax.

TAGS: tax | value added tax (VAT) | fiscal policy | budget | corporation tax | tax rates | Spain

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