Sweeping income and corporate tax cuts on the way…in Spain?

posted at 9:21 pm on June 26, 2014 by Mary Katharine Ham

In an attempt to boost economic activity and strengthen the ruling conservative coalition’s electoral prospects before November 2015, Spain is going to try economics, freedom-style:

Spanish leaders who broke their no-new-taxes pledge after taking office 2½ years ago announced sweeping tax cuts on Friday, saying it was time to compensate a recession-battered populace for its sacrifices and boost a nascent recovery.

Budget Minister Cristóbal Montoro, announcing the government’s main economic initiative of the year, said the planned reductions of income and corporate taxes will stimulate investment, creating jobs and making Spanish companies more competitive abroad.

They will also put more money in the pockets of consumers as the ruling, conservative Popular Party moves toward elections, which are expected as early as the end of next year.

Spain is no longer in recession as of 2013, but its unemployment rate stands at an appalling 26 percent. The ruling party hopes tax cuts will spur growth, allowing it to make promised cuts to its deficit without further gouging its citizens:

The plan is likely to come under close scrutiny from the European Commission, reflecting concern that reducing taxes could jeopardize Madrid’s pledge to cut its deficit to 3 percent of gross domestic product by 2016 from an expected 5.6 percent in 2014.

On Friday, the government also rejected raising Spain’s value-added tax despite suggestions from Brussels that Spain should consider increasing consumption levies and other indirect taxes to help meet deficit goals.

Instead, Mr. Montoro forecast that cutting taxes would increase both investment and consumption, helping to increase Spain’s gross domestic product and keeping the country on track to meeting its deficit targets.

Dan Mitchell, a tax policy expert at Cato, thinks the tax cuts are unlikely to happen or unlikely to stick unless they’re coupled with real spending restraint, but at the very least perhaps we can hope that if policies along these lines becomes fashionable in Europe, our liberal betters might adopt them like so many Empire waists and French bustles.

The specifics:

Montoro said workers would on average see their income tax bills drop by 12.5 percent by 2016.

The average corporate tax rate will be reduced to 25 percent from 30 percent over the two years.

The government estimates the measures will put some 7.6 billion euros ($10.35 billion) into the economy.

All of this is a bit of a make-up call from the conservative government, which implemented unpopular tax hikes upon coming into office, in a bid to deal with the gargantuan deficit problem.

Front page photo courtesy of Jim McIntosh on Flickr.

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Bishop?

307wolverine on June 26, 2014 at 9:31 PM

Those greeeeeedy corporaaaaaaations!

Judge_Dredd on June 26, 2014 at 9:33 PM

Spanish leaders who broke their no-new-taxes pledge after taking office 2½ years ago announced sweeping tax cuts on Friday, saying it was time to compensate a recession-battered populace for its sacrifices and boost a nascent recovery.

The pain in Spain comes mainly from no gain.

itsnotaboutme on June 26, 2014 at 9:35 PM

but its unemployment rate stands at an appalling 26 percent.

It’s the pain in Spain that helps explain.

Flange on June 26, 2014 at 9:35 PM

itsnotaboutme on June 26, 2014 at 9:35 PM

:-)

Flange on June 26, 2014 at 9:35 PM

Maybe Spain should do some salvaging along Florida’s coastline, for Spanish
Galleons booty!!

canopfor on June 26, 2014 at 9:39 PM

Oh yeah, and I remember the Maine!

Flange on June 26, 2014 at 9:42 PM

Spain’s debt to GDP has risen from around 70% in 2011 to 93% in 2013. Their GDP fell around 3% during this time frame. So how’s that tax hike working out for you?

At least they have enough sanity now to realize it isn’t working, and try an different approach.

s1im on June 26, 2014 at 9:42 PM

Flange on June 26, 2014 at 9:35 PM

Great minds… :D

itsnotaboutme on June 26, 2014 at 9:43 PM

“All of this is a bit of a make-up call from the conservative government”
isn`t Spain ruled by the socialist ?

Rook on June 26, 2014 at 9:44 PM

its unemployment rate stands at an appalling 26 percent

Not as high as our functional unemployment rate.

22044 on June 26, 2014 at 9:45 PM

We are coming close to the top of this cyclical bull market here in the US…

Might be down wave first similar to the summer of 2007…

Then a final top in the fall…

It should be pretty easy to spot…

Waiting for the market to give the signal…

MGardner on June 26, 2014 at 9:57 PM

NOPE IT HAS A SO-CALLED CONSERVATIVE GOVERNMENT. I WAS WRONG.

Rook on June 26, 2014 at 9:59 PM

When all else fails, try common sense.

ROCnPhilly on June 26, 2014 at 10:03 PM

We could send them a million or two Mexicans; the Democratics say they are good for the economy and they already know the language.

slickwillie2001 on June 26, 2014 at 10:48 PM

Spanish leaders who broke their no-new-taxes pledge after taking office 2½ years ago announced sweeping tax cuts on Friday, saying it was time to compensate a recession-battered populace for its sacrifices and boost a nascent recovery.

David Román @wsj.com Updated June 20, 2014 9:26 PM ET
.

The pain in Spain comes mainly from no gain.

itsnotaboutme on June 26, 2014 at 9:35 PM

.
:-)

Flange on June 26, 2014 at 9:35 PM

.
Can’t beat that … itsnotaboutme wins.

listens2glenn on June 27, 2014 at 12:26 AM

You can tell these Spainards are not the brightest politicians. Everyone should know by now the way to lower unemployment is to just change the numbers. Measure it differently, only count the people who are actually trying to get a job, don’t count the ones who have given up. If that doesn’t work just get creative with the math, if that doesn’t work lie, cheat, make something up, but actually doing something … that’s so old fashion.
Brought to you by the MSM and the Obama network.

odannyboy on June 27, 2014 at 7:51 AM

Well, apparently someone has figured it out …. and it ain’t us.

clippermiami on June 27, 2014 at 8:35 AM

Well, apparently someone has figured it out …. and it ain’t us. – clippermiami on June 27, 2014 at 8:35 AM

True

SC.Charlie on June 27, 2014 at 8:47 AM

I don’t think the “change” is going to convince many Spanish business people.

Anything the politicians do this month, they can easily take back next month or next year. They’ve already, apparently, shown that they don’t hold to their word and people with their own capital on the line are not stupid. There is a lack of certainty that the pols will stick with what they now say they want to do. I would think that until the pols show they will stick with the program, which may take awhile, they are not going to get the kind of kick-start that they likely hope to get.

Uncertainty is one of the faster way to get people to stop taking risks.

Russ808 on June 28, 2014 at 7:33 AM