Rajoy promises no taxes, but Spain gets them anyway

Even though Prime Minister Mariano Rajoy said last week that "Friday won't be a tax day" in reference to a possible tax increase, he has yet again said one thing and done the opposite. The only concrete measure that the Council of Ministers adopted was to increase taxes. Still, the government's reform agenda was limited to a simple list of measures that were announced months ago, but nothing has been set in stone.

It looks like Friday's tax increases have set the stage for relaxing the deficit goal to 3% for 2016 and 6.3% for this year. It is possible that the EU has agreed to this plan. Going forward with a reform program is the only way to deal with the negative economic forecasts that Spain has for the next few years. The macroeconomic view shows that GDP will fall by 1.3% in 2013. While the risk premium fell moderately throughout last week, on Friday it stayed above 300 basis points on the markets' skepticism of the solidity of the Spanish government reform efforts, especially because the government is resorting to more tax hikes that Deputy Prime Minister Soraya Sáenz de Santamaría enthusiastically calls "tax adjustments."

An increase to Spain's personal income tax, which was set to go into effect by law in two years, will be delayed another year. Perhaps in 2015, the next electoral year, Montoro could decide to lower this tax in an effort to win some votes. Companies have lost several tax deductions, but will still pay the same rates. There will be a tax on deposits held at banks. "Special taxes" and environmental taxes -- except hydrocarbons -- will also go up. Does the government really believe that with this tax policy it can drive economic growth? And does Rajoy know that these tax measures have been in legislature for over a year and if they are not put into effect soon then they have a high chance of never materializing?

The situation is serious and needs to be addressed quickly. But the government asks us to have patience. It is impossible to wait around while the Social Security system expects a 1.4% deficit. This means that it ran short 10 billion euros last year. Another 14 billion euros in deficit can be added for 2013. A commission has been tasked to study the sustainability factor, and its recommendations could be sent to congress during the third quarter of this year. Will nothing be done in the meantime? How can we justify increasing pensions in the national budget for this year? This is not the only example of Rajoy letting problems slide. Where will Spain get the 40 billion euros that it wants to give to small- and medium-sized businesses so that they can drive growth? How are we going to fight the legal difficulties for establishing a unified market and how much time will pass before doing so?

Public sector reforms run the risk of focusing merely on some minor changes to local administrations that don?t eradicate redundancy or the total of number of town councils (66% of municipalities have less than 1,000 citizens). While the regional governments get some financial help so that they can meet their deficit goals, what will happen next? Even though the EU and the IMF have approved Spain?s reform agenda for 2013-2016, the most important aspect is still missing: making the reforms concrete. Rajoy should take reforms seriously and take responsibility for making sure they happen. If not, then he will end up making the same mistakes as his predecessor.