Spanish tax policy in a shambles

The Finance Ministry continues to lose its grip on the nation's public accounts. Cristóbal Montoro's wave of tax hikes has not boosted revenue, but has harmed business activity and consumer spending. He is preparing his fourth tax increase, which will slash deductions available to companies with more than 20 million euros in revenues.

Montoro's defense is that these deductions encourage accounting practices that elude taxation, but the reality is that the crisis has robbed profits from these firms and 2012 tax installment payments took away a quarter's worth of earnings this year. In 2013 the average rate of various taxes will fall, a clear indicator that there will be less revenue. Montoro has not outlined why that is happening.

As his fellow partymember Esperanza Aguire says, Montoro wants to raise taxes. Madrid's former leader forgets that during his time in office the number of government workers doubled, built hospitals that are now being privatized and lowered the personal income tax.

In addition to deductions for expenses related to financing and refinancing debt, Montoro is going to do away with foreign investment deductions. All of these changes will hurt Spain's brand abroad, which is sad because exports are the one area of business keeping our companies profitable. If R&D deductions are also cut, then that will be the death blow to our economic future, which is already flagging becuase of lack of investment.

Montoro is raising taxes in an underhanded way if he wants to keep tax rates the same and slash deductions. With this kind of tax policy, the government will struggle to engineer a recover for Spain and will fail to increase overall tax revenues. Instead, it should lower tax pressure by sparking consumption and helping companies as much as possible.