Deficit-cutting measures by the Spanish governmeNt send tax rates through the roof

The Spanish government has been trying to cut their deficit (forecast to be approximately 8% of GDP for 2011) for two years now, mainly by spending cuts and tax rises including a 2% rise in the rate of IVA (VAT) and a return of the wealth tax.  But it seems that now, with a change of government in December, they are getting serious about plugging the gaping hole in the national finances with some serious tax rises.

Increased income tax rates 2012-13 (applied to earned income).

Income band Previous rate         Increase New rate

€0 - €17.007 24%  0,75% 24,75%

€17.007 - €33.007 28% 2% 30%

€33.007 - €53.407 37% 3% 40%

€53.407 - €120.000     43% 4% 47%

€120.000 - €175,000 44% 5% 49%

€175.000 - €300.000 45% 6% 51%

More than €300.000 45%               7% 52%

Autonomous regions sometimes add more tax to these rates.  For example Cataluna charges an additional 3% to the higher tax bands (see Spanish Income tax rates 2012).

Increased taxes on capital gains and investment income 2012-13

Income band Previous rate Increase New rate

€0 - €6.000 19% 2% 21%

€6.000 - €24.000 21% 4%               25%

more than €24.000 21%                 6% 27%

 

Non residents tax rises from 24% to 24,75%

IBI (local taxes, the equivalent of council tax in the UK) rises from 4% to 10% impacting more than 25 million properties in Spain. A small number of properties suffer no rise because they were built during the peak fo the property boom and their official values are inflated any way.

The rises are supposed to be temporary, applying only to 2012 and 2013 but the mood in Spain is gloomy with no end in sight to the years of austerity and economic pain.  The squeeze has also been put on local and regional governments who are being forced to cut spending and jobs.  Pensions and public sector pay are also under attack.

It is hard to see Spain growing under the combined weight of these measures, even though no one can deny that something needs to be done to reassure debt markets because of the amount of debt that Spain needs to sell to avoid going under.