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2014 Taxes to be decided after EU Verdict on Deficit Targets

Source: Bloomberg - Wed 3rd Apr 2013
2014 Taxes to  be decided after EU Verdict on Deficit Targets

Spain's government is waiting for the result of negotiations with the EU on its budget deficit goals before deciding on its tax policy for 2014.

"Tax decisions for 2014 haven't been taken yet and will obviously depend on negotiations with the European Commission and other EU partners," Budget Minister Cristobal Montoro said during a conference in Madrid yesterday. "It will all depend on the deficit targets that are established and on their underlying economic assumptions."

The government is requesting an increase of its deficit target in 2013 to about 6% of GDP from 4.5% as the euro area's 4th-largest economy heads for a 2nd year of recession.

The yield on Spain's 10-year benchmark bond fell two basis points to 4.92% at 9:15 a.m. in Madrid, leaving the spread with similar German maturities at 3.61 percentage points.

The commission, the 27-nation bloc's executive, yesterday said it will arrive at a decision on Spain's budget performance after the European statistics agency Eurostat releases budget data for 2012 on April 22.

Mariano Rajoy, in power since December 2011, has said he cut the deficit to 7% of GDP last year from 9% in 2011. Including aid to the banking sector, the figure was 10.2% of GDP, up from 9.4%.

‘Crucial' Talks

Montoro described the current weeks of talks as "crucial" and said he was pleased that a "change of philosophy" has led the International Monetary Fund and the European Commission to water down their austerity prescriptions.

"Thankfully what is changing is the concept of focusing solely on deficit targets without taking into account the impact on the economy," he said. "The EU has no interest in Spain's extending its economic recession."

Montoro also said the government will implement a new plan to pay public suppliers so a maximum delay of 30 days is respected. The law will need to be changed, Montoro said, without providing further details.