A government butting heads about tax policy is nothing new, but it is painfully obvious right now for Rajoy and his team of Ministers and other party leaders. Members of the Peoples' Party disagree about Finance Minister Cristóbal Montoro's tax policy. The unrest has spread to parliament and the Prime Minister's office, becuase measures against the PP's campaign are being adopted.
José Maria Aznar, honorary party leader, expressed the party's intent openly during a television interview, causing a massive upheaval within the party. Aznar's comments and statements from Esperanza Aguirre support the most liberal arm of the executive -- Arias Cañete, de Guindos y Soria -- who have not been able to convince Rajoy that tax increases will not solve the Spanish economy's problems.
Montoro argues that there is no alternative but to increase tax pressure and, thanks to the EU reducing pressure on Spain to meet its GDP/debt ratio goal, the government will be able to continue paying pensions. This proves that the bulk of debt reduction will result from increased revenue through tax hikes, not through spending cuts. The legislative period has lasted for a year and a half, and the Finance Ministry has yet to put its public sector reforms into action except for a confusing local government reform that was made known this week.
It has also failed to create a tax reform that increases the overall tax base and lowers the average tax rate. A strategy that would raise more tax revenue overall and drive economic growth. A split in the executive body is a serious roadblock for a smoothly operating government, and Rajoy should take steps to smooth over this rift. Still, there is little reason to believe that the tax policy will change, becuase the Prime Minister said yesterday that he is not going to change course midstream. Rajoy has made the wrong choice, and in doing so he will betray the people who put him in office and, worse, delay Spain's chances for recovery.
