Palma.—The news has hit consumers and business like a bombshell and the unions were furious yesterday claiming that all that an increase in IVA (VAT) will lead to is greater unemployment and even less consumer confidence and therefore plunge Spain into further problems.

Over the past few weeks, the Spanish government has rolled out a series of “add ons” to its budget such as an increase in taxes and now it has decided to put up VAT.

No exact figures was being reported yesterday but there was growing talk of a rise of around four percent which would push VAT up to 22 percent.
The increase in VAT introduced by the former socialist government from 16 to 18% raised an additional 6.5billion euros for the treasury and now the government is aiming to raise a further eight billion euros.

On Friday, the government was forced to admit Spain's sickly economy faces a “crisis of huge proportions” as unemployment hit its highest level in almost two decades and Standard and Poor's downgraded the government's debt by two notches.

National unemployment shot up to 24 percent, 28 percent here in the Balearics, in the first quarter, one of the worst jobless figures in the developed world.

Retail sales slumped for the twenty-first consecutive month as a recession cuts into consumer spending. “The figures are terrible for everyone and terrible for the government ... Spain is in a crisis of huge proportions,” Foreign Minister Jose Manuel Garcia-Margallo said.

Spain has slipped into its second recession in three years and fears that it cannot hit harsh deficit cutting targets this year have put it back in the centre of the debt crisis storm, pushing up its borrowing costs.

Recovery and job creation are still two years off, Economy Minister Luis de Guindos said where he forecast 0.2 percent growth in the gross domestic product next year and 1.4 percent growth in 2014.

It was De Guindos who also said Spain would increase the value-added tax and other indirect taxes next year, but would seek to reduce payroll taxes. Spain has a low VAT compared with other European countries even after raising it in 2010.


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