SPANISH FINANCE minister Elena Salgado has unveiled what she called an austere 2011 budget that will increase income tax for the rich and cut ministerial expenditure by an “extraordinarily large” 16 per cent.
Spain’s Socialist government says it is determined to stick to its deficit reduction plans.
Ministers want to distinguish Spain from more vulnerable economies such as Greece, Ireland and Portugal on the periphery of the eurozone.
Ms Salgado announced a rise in the top marginal rate of personal income tax, currently 43 per cent. That will rise by one percentage point for annual incomes over €120,000 and by two points for those above €175,000.
A capital gains tax exemption for investment funds used by wealthy families to manage assets was also abolished.
Such measures are unlikely to raise large sums of money – Ms Salgado estimated the extra revenue from the income tax rises at €170-€200 million – but are designed to appeal to disenchanted left-wing Spaniards. Trade unions have called a general strike for Wednesday in protest.
Although Spain has stuck to its deficit targets and been rewarded by the bond markets with lower borrowing rates, economists and investors see official growth forecasts as over-optimistic. They say a growth shortfall could threaten revenues and thereby undermine the credibility of the budget.
“It’s too early to declare victory,” said Emilio Ontiveros, chairman of Analistas Financieros Internacionales, a research group.
“The markets are very worried about the political capacity of governments to clean up the public finances, and there is concern about the ability of the Spanish economy to grow and create revenues.”
Ms Salgado announced a small downward revision of the 2009 budget deficit, putting it at 11.1 per cent instead of 11.2 per cent of GDP, and said everything would be subordinated to Spain’s promise to cut its deficit to 9.3 per cent of GDP this year and 6 per cent in 2011. – (Copyright The Financial Times Limited 2010)
