Widening tax exemptions to people who earn less than 12,000 euros will only cost the state 19.7 million euros in tax revenues according to Finance Ministry calculations (Gestha). But Cristóbal Montoro's budget runs a close margin already, because he must cut the deficit ratio to 5.8% of GDP this year compared with last year's 6.5%.
This means that he has to spend 7 billion euros less or raise 7 billion euros more in taxes. So there is no reason to cheer about short-term budget successes that result from obvious campaign politicking. The proposed tax cuts will not go into effect until 2015, will affect only half a million taxpayers and will only have a 400,000 net effect because many people in this group already don't pay taxes. Individuals in the group will save around 49 euros per year. Is this the result of our hyped up tax reforms?
We will have to wait and see what fine print the Prime Minister approves. It is clear that the middle class is carrying most of the weight and will continue to do so, because Rajoy has announced no changes for them. Perhaps because he can't, because changing the personal income tax would require overhauling the tax system's structure, a task that the government will focus on at a later time.
It is disappointing that this government is not reforming the tax system when it is so critical. Rajoy admits that we have a revenue problem, but has not enacted enough remedial measures. This kind of fix would require a long-term move that compromises short-term electoral politics. Sure, during the next campaign Rajoy and crew can say they lowered taxes. But can they say they changed they helped Spain for the long haul?
