Many familys are going to have to spend their summer break thinking about how to deal with price increases that will start this fall. The VAT hike and a new tax on energy will go into effect on September 1 and will have a big impact on consumer spending. The government estimates that price increases will cut GDP by one percentage point in 2012. The loss could be countered by the government-sponsored service provider payment plan, a plan that will pump some cash into companies waiting to receive payments for services they have completed but not been paid for.
New taxes on the energy sector will show up immediately on power and gas bills. Increases are likely to be 5% and 2%, respectively. Gas will go up by 10 cents. The VAT for goods and services for associated with recreation, culture and the arts will go up by 13 percentage points. Interestingly, bullfighting rates will remain flat, but rates will rise for cinema and the theater.
Fortunately, clearer heads prevailed in other areas, and policy makers have decided to not hurt tourism in August by postponing raising taxes.
But at the end of the season, VAT taxes will go up from 8% to 10% and from 18% to 21%. The goal is to bring in around 7.5 billion euros in additional revenues. In the six weeks left until September, companies will get time to adapt their databases, and car sales should spike. Average vehicle prices will go up by 700 euros after the summer holiday.
The postponement will prevent an increased anxiety about a tax hike like when Zapatero raised the VAT. This hike went into effect on January 1 but wasn't applied until July 1. In September, the back-to-school season will be especially tough on consumers, which will further hinder Spain's ability to restore confidence in its economy.
