The Pain In Spain Is Mainly In The Checkout Lane

The hammer is dropping in Spain.

MADRID — Spain announced a 65 billion euro ($79.85 billion) austerity package that includes tax hikes and spending cuts on Wednesday, a day after it won approval from its euro partners for a huge bailout of the country’s stricken banks.

Prime Minister Mariano Rajoy told parliament the country’s future was at stake as Spain grapples with recession, a bloated deficit and investor wariness of its sovereign debt. He said the nearly $80 billion in savings will be achieved through 2015 by a hike in sales taxes and a series of spending cuts through 2015.

“We are living in a crucial moment which will determine our future and that of our families, that of our youth, of our welfare state,” Rajoy said.

With 25% unemployment, and 50% youth unemployment it seems like the “welfare state” is the problem. Raising taxes might only make that worse…

(Reuters) – A sharp rise in Spain’s sales tax rates will cost billions of euros in lost earnings and thousands of jobs, representatives of key industries said on Wednesday, complicating the country’s efforts to pull itself clear of recession.

The tourism sector would lose around 2 billion euros ($2.45 billion), an industry body said, while car manufacturers estimated they would sell between 20,000 and 25,000 fewer vehicles in the next five months.

Prime Minister Mariano Rajoy announced the value added tax hikes on Wednesday as part of a scaled-up austerity programme imposed under pressure from European partners and designed to slash 65 billion euros from the public deficit by 2014.

General VAT was raised to 21 percent from 18 percent and the reduced rate for the leisure industry to 10 per cent from 8 percent.

They’re also upping energy taxes, but not for the reason you’d think. They are raising taxes to help offset the subsidies that they already provide to the energy sector.

Energy providers in Spain have consistently charged customers less for their services than the cost of producing energy, resulting in a 24 billion euro deficit in the industry that has been absorbed by the government.

Soria said the deficit could increase by a further 6.5 billion euros this year if no action was taken, meaning the new tax should cover it fully.

Here’s a novel concept, why not have the energy providers (including all the “green” forms) charge customers a price that will cover their production costs? There’s a real big savings to the government.

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