Speaking to the General Assembly of Employers’ associations on Monday. / Sergio Pérez
The Spanish Government is preparing a new package of unpopular anti-crisis reforms and wants to inoculate the general public in order to cushion the blow of the bombshell when it does finally drop.
Sources of the state tax agency revealed this week that they are working on the value added tax (IVA) increase demanded by the European Commission and International Monetary Fund (IMF). For the time being however this will involve moving some products currently subject to a reduced rate into the general 18 per cent tax band.
Rajoy announced on Monday that more “difficult” economic measures would be coming “soon” in order to “grow and create employment”.
He gave no more clues, but tax agency sources have confirmed that the government is revising the list of products currently subject to the reduced IVA rates of four and eight per cent. In this way state income from value added tax would increase by applying the full 18 per cent rate to more items.
At present the 18 per cent rate is paid on the majority of consumer goods and services. Prime Minister Rajoy is clearly reluctant to increase this general rate, especially after he slammed the two per cent hike introduced by Zapatero in 2010 so fiercely and now fears heavy criticism as well as a slump in consumer spending.
To ease the blow the EU suggested expanding the top band without formally increasing the rates. In practice they will be increasing value added tax on certain products, but can use the term “expand” rather than “increase”.
At present the reduced rate of eight per cent tax is applied to some food products, glasses and contact lenses, catering and tourism, cultural events, newspapers, hairdressing, funeral services and certain health and farming equipment. The “super reduced” rate of four per cent is applied to products considered as basic essentials, such as bread, milk, eggs, fruit and vegetables, cheese, books, medicines, and ‘protected’ housing.
Rajoy warned the country of “difficult” measures to come during his speech to the General Assembly of the CEOE, the Spanish Confederation of Employers’ Organisations. This was the ideal forum for this type of announcement, as business owners have criticised the measures already introduced as “insufficient” and call for more extreme changes to labour and tax legislation.
Rajoy provided no further indications as to what his difficult decisions will involve however experts suggest that the coming measures could affect public administration, public sector salaries, pensions and even unemployment benefits.