Spain debt crises and VAT increase

6 June 2012 – source: – Fiona Govan

The country’s top rate of VAT is 18pc – one of the lowest in Europe – and Prime Minister Mariano Rajoy has so far ruled out a hike insisting it could further damage consumer spending and cramp growth.

However, in a move that will save political face while also boosting much needed revenues, the finance ministry said it was considering plans to abolish discounted tax rates on certain goods and services, raising the rate to 18pc across the board.The ministry is studying reclassifying certain products and services that have reduced or super-reduced VAT,” a spokesman said.

Spain charges the reduced rate of 8pc on the majority of food and sanitary products, ground transport, cultural activities such as cinema and theatre tickets, and hotel stays. The super-reduced rate of 4pc is applied to basic foodstuffs such as milk, bread, fruit and vegetables and on books and newspapers.

Raising the VAT to 18pc on all products and services would mean households would see a significant increase in weekly shopping bills in a nation that is already struggling with deep austerity measures and an unemployment rate of almost 25pc.

In 2010 the VAT rate was raised from 16pc, a move which was deeply unpopular and the conservative government pledged not to increase it further. They won a landslide victory in November, ousting the socialists of Jose Luis Rodriguez Zapatero.

The European Commission and the International Monetary Fund have both recommended Spain revise its VAT charges, widely seen as the only way to meet its deficit commitments. Spain is trying to trim its annual deficit from 8.9pc of GDP last year to 5.3pc this year and 3pc in 2013 but analysts expect it to fall short.

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