A report drawn up for the government by a team of so-called experts has suggested a reduction in direct taxes and social contributions combined with the raising of indirect taxes, such as VAT.
The committee of ‘wise men’ argues that reducing direct taxes, such as income tax, and social contributions will stimulate employment and increase the competitiveness of Spanish products in the global market.
Spain already has one of the highest rates of social contributions in Europe at 35.35 percent of gross salary between employers and employees. This is mainly due to high unemployment and wage devaluation as a result of the crisis causing an imbalance in the state pension system, which is currently paying out more than it receives.
A cut in Social Security contributions would further increase the shortfall and reduced direct taxes would also be detrimental, so this would have to be addressed. And what better way than increasing or creating new indirect taxes, as usual.
However, the current proposal centres on increasing the lower rates of VAT to the standard rate, as the government is loath to push up the standard rate even further. Not that being ‘loath to do so’ rules out such a move as everyone knows.