65 billion euro budget reform announced (IVA up, spending down, taxes up, benefits down, etc)

IVA will change on the 1st of September.

In an effort to slash 65 billion euros out of the government spending over the next two years, Mariano Rajoy, PM of Spain, today announced in front of Congress one of the most sweeping reforms ever laid down in democratic Spain.

In brief:

  • 18% IVA will go up to 21%
  • 8% IVA will go up to 10%
  • 4% IVA stays the same
  • All government spending on political parties, unions, etc is cut by 20% with immediate effect, and a further 20% next year
  • Christmas bonuses to civil servants have been elimanted, in effect cutting public sector pay by around 5,7%. However, contributions of civil servent pensions will be increased.
  • Civil servents will lose their rights to a series of additional “personal days” – currently they can take 4 additional paid days of holidays for “personal reasons” whenever they want to
  • Unemployment benefit is reduced as from the sixth consecutive month of being on the dole
  • No more tax benefits for buying your first house
  • The number of councillors per townhall will be cut by 30%
  • Salaries of mayors and councillors will be regulated and if necessary reduced
  • Smaller townhalls will lose certain duties, and see their annual budgets correspondingly reduced, as public services are concentrated into the Diputaciones (county councils), in an attempt to save 3,500 million euros in duplicated services from small (under 20,000 inhabitents) towns
  • A committee will be setup to discuss further increasing the retirement age, with a decision to be taken by next year
  • Special taxes on tobacco will be increased
  • A series of new environmental taxes are to be levied on companies whose activities affect the environment – “he who spills, pays” as Rajoy put it.
  • 600 million euros will be slashed, in real terms, from Ministerial budgets in 2013, meaning that next year the government will have even less to spend

However, the IVA effect is to be balanced out for companies by a reduction in the cost of employing staff. Social security contributions paid for by the employer will be cut 1% in 2013 and an additional 1% in 2014.

Rajoy started the speech by stating that “we cannot yet start to talk about growth or improvement” and ended the speech with the dire warning that the worst is yet to come for the Spanish economy.

The news came at the same time that AENA, the airports operator, announced that it saw a 4,6% drop in passenger numbers in the first half of this year, having carried out 90,14 million trips.

IVA rates across the EU (click to make it bigger):


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