As coal miners and other protesters converge on Madrid, Spain's Prime Minister announces the latest austerity measures, including a VAT increase.
Digital Journal reported earlier today that coal miners and supporting protesters are thronging the streets in Madrid. In latest news on this protest, Spanish police have fired rubber bullets at protesters in central Madrid today.
Now, to make the protesters even more upset, Prime Minister Mariano Rajoy announces the latest in a round of austerity measures and budget cuts, which will worsen economic conditions for Spaniards.
While Rajoy made a campaign pledge before his party, the Partido Popular, came into power that taxes would not be raised, and while as recently as January he had said that there was no plan to raise taxes, he is now advising that VAT will be increased from the current 18% to 21%, with almost immediate effect:
"I said I would lower taxes and I am actually raising them. Circumstances change and I have to adapt to them," said Rajoy.
Bloomberg is reporting that this increase in VAT will cost families 415 Euros ($510) extra per year, which many families simply cannot afford.
Citing calculations based on the National Statistics Institute’s data on household spending, consumer organization, OCU, apparently said in an emailed statement, “The raise will slow families’ spending as they are already heavily affected by the crisis.”
Rajoy informed Congress in Madrid on Wednesday of the steps Spain will take to comply with Brussel's demands, in order to receive the European bailout of its financial sector:
“In the current situation, growth and job creation together just aren’t possible. We are currently in the second deepest recession in our history and the slump will continue next year.”
He noted that in order to exit the current crisis, it is essential to cut costs and increase revenues. Rajoy expects Spain to save €65bn over the next two and a half years with his new fiscal plan that includes increasing sales tax, cutting public workers’ salaries by 7% and reducing unemployment benefits.
The following measures are to be introduced:
- VAT will increase from 18% to 21%
- Reduced VAT rate on public transport, hotels and processed foods to be raised from 8% to 10%
- VAT on basic goods, like bread, medicine and books will remain at 4%
- Christmas bonuses to be suspended for public sector workers
- Unemployment benefits to be cut from 60% to 50% from the sixth month without work
- 30% cut in councilors in some areas
- Subsidies for political parties and unions to be cut in 2013 by 20%
- Taxes on tobacco will also rise along with other environmental and company taxes
- The tax deduction for new home buyers will be eliminated starting in 2013.
Many analysts are saying that the additional austerity measures could seriously undermine the country's ability to revive its economy. However, Rajoy is, apparently, caught "between a rock and a hard place", between Spanish voters and Spain's partners in the Eurozone.
“Growing and creating jobs isn’t possible today,” Mr. Rajoy told Parliament. “The outlook is truly somber.”
With 25% of Spaniards out of work, and 50% of the youth unable to find employment, the outlook is somber indeed.