"We will meet our deficit objective. Spain is keeping its word and will show that to the entire EU." The Spanish government uttered this dictum yesterday to justify the approval of a 27.3 billion cut that led to, in the words of Cristóbal Montoro, who headed its design and knows all the ins and outs, "the most austere national budget of democratic Spain."
The cutbacks that the Cabinet approved yesterday (the fine print will be publicized on Tuesday when the budget goes before Parliament) in two large, near-equal steps. First, the Government has chosen to raise taxes once again, renouncing the Peoples Party ideology. But this time companies, not citizens, will be hit hardest with taxes. The total increase to tax revenues should equal 12.314 billion euros, which does include the IRPF (personal income tax) increase levied last December. Second, the 2012 national budget will reflect 13.4 billion euros in cuts to federal spending.
Healthcare co-pay and tobacco subsidies
New aspects of the tax section of the budget include allowing tax amnesty policies for some companies and citizens. The People's Party called this policy "an unfair and disgraceful practice" when it was the opposing party. With this measure the government would pardon tax evaders provided that they claim at least 2.5 billion in undeclared income. How? It will reward taxpayers with lower than usual tax rates for this year. The tax rates will drop to 10% for domestic earnings and 8% for earnings realized outside of Spain.
Companies will also be affected by a 5.350 billion euro increase to taxation on corporations achieved by changes to their tax and non-financial spending deductions. Amortization liberties will be eliminated and a set minimum for payments made by installment. The tax increase will also affect individual taxpayers in two other ways: the price of tobacco will go up in order to harvest 150 million euros in revenues and the Ministry of Justice will apply healthcare copayments for a second time for those that need them.
