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Spain "Aiming to cut personal income tax" : Rajoy

Source: El Pais - Thu 21st Nov 2013
Spain 'Aiming to cut personal income tax' : Rajoy

Spanish PM Mariano Rajoy said Thursday that it was his government's intention to lower personal income tax (IRPF) rates before his mandate is up in 2015, and while not ruling out further cutbacks, he indicated that these would not be of the same magnitude as those introduced in his first 2 years in power.

In an interview with RNE state radio, Rajoy also ruled out any changes to value-added tax (IVA) rates in the medium term. "What we do want to do is lower personal income tax," he added.

Despite election campaign pledges to the contrary, the conservative Partido Popular (PP) raised IRPF rates almost immediately upon taking office as part of an austerity drive to rein in the public deficit that also included draconian cutbacks in basic services such as education and health. The administration also increased the standard IVA rate from 18 - 21% and the reduced rate from 8 - 10%.

Rajoy said after inheriting a "very difficult" scenario and having to make "tough decisions," the situation had now changed. "I am in a position to say that the any adjustments required would not be as significant as we have seen up to now," he said. "If there are further adjustments because they are necessary, they won't be on the same level."

Despite the fiscal adjustment, the deficit remains stubbornly high and the European Commission last week calculated that the government needs to introduce further budget measures worth 35 Bln over the next 3 years to meet its obligation to bring the shortfall ceiling of 3% of GDP by the end of 2016. The deficit target for this year is 6.5 - 5.8% in 2014, 4.2% in 2015 and 2.8% in 2016.

During the interview with RNE, Rajoy indicated that his government had stood its ground against Brussels on certain fiscal issues. "The EU asked us to raise the IVA rate for the hostelry trade from 10 - 21%. We didn't do so."

Rajoy said no decision has been taken on whether to lower the IVA rate on cultural activities such as cinema and theater tickets despite strong calls from the sector to do so. The rate was raised from 8 - 21% as part of the austerity drive.

The PP initially said that the IRPF hikes would only be for 2012 and 2013, but the government decided to keep them in place in next year's state budget. The possible cut in personal income tax would likely come as part of an overhaul of the country's tax system the government is planning to introduce in 2015.

The fiscal reform is also to be accompanied by changes to the system of how tax revenues are shared between the central government and the regions.

Rajoy said he was "convinced" his government would be able to leave the unemployment rate below the level of when it took office, which was close to 23%. However, forecasts sent by the administration to Brussels predict a jobless rate of three percentage points higher than before the PP took power. Neither the government nor multilateral agencies such as the IMF believe the economy will be growing sufficiently over the next 2 years to make significant inroads into unemployment, which currently stands just under 26%.

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