The European Commission has proposed raising Spain’s net deficit target to 6.3% for this year – Prime Minister wanted 6.3% and the current target is 4.5% – and Spain has been given a two year extension to get the deficit down to the 3% threshold laid down by the Pact for Growth. But it will come at a cost.
The proposals still have to be approved by the Eurogroup and Ecofin in June and endorsed by the leaders of the EU at their summit later in the month.
If approved, Spain will have until 2016 to reduce the net deficit to 3%. However, Brussels will be making demands.
Spain will have to look at increasing VAT on a number of items from the low rate of 10% to the standard 21%. This is because although Spain has made the necessary structural adjustments to fiscal policy, the financial situation in the country has worsened.
Spain will also be required to complete the reform of the pension system and consider additional changes to the labour system before September 2013.
Brussels has decided not to initiate disciplinary proceedings relating to imbalances, but has decided instead to speed up the timetable for reforms envisaged by the Government.
In addition, more consideration will have to be given to increasing the so-called ‘environmental’ taxes, such as on fuel. These are just some of the measures which will no doubt be imposed on Spain in return for increasing the deficit target.
That’s right. More taxes, increased taxes, less people in work…great way to encourage consumer spending.