Spanish Tax Rises Putting Recovery at Risk - ADVOCO

Jan. 20, 2010 - PRLog -- That was the conclusion of the “Talking Spanish Business” breakfast forum sponsored by Advoco Law and Accountancy and held in Estepona on 19th January.  Speaking about the meeting of Costa del Sol businesspersons and business advisers, Advoco tax and accountancy partner James Baker said that the feeling of the group was unequivocal: Spain has a chance of recovery in 2010 but government actions could stop any improvement in business conditions in its tracks.

By most measures the Spanish economy is still well short of recovery.  Mr Baker pointed to three key economic measures which have yet to turn upwards:

•   Unemployment continues to rise, albeit at a slower rate, to close to 4m and 20% of the working age population

•   The economy is estimated to have contracted by 4% in 2009 with the IMF predicting a further decline of 0.8% in 2010

•   Retail sales continue to fall from their 2007 peak and are down in total by 12%

•   Spanish property prices have been predicted to fall up to 12% in 2010, the third year of declines in succession

Manuel Pederegosa, a small business expert addressing the meeting, outlined the government’s plans for 2010 and how they might impact on the environment for business.  “To address the country’s dire fiscal position the Spanish government is introducing a series of tax rises which, taken together, are likely to further reduce the ability of the Spanish consumer to lead a recovery”. He went onto list some key measures:

A rise in value added tax from 16% to 18% with effect from July

A withdrawal of the 400€ tax credit for employed and self-employed individuals earning less than 12.000€

An increase in taxes on dividends and interest income

An increase on duties on cigarettes (50c per packet) and petrol which will add about 2€ to the cost of filling the average car

Señor Pedregosa then highlighted some other factors that would make 2010 even more challenging than 2009 for Spanish consumers. Cash-strapped local authorities are thought to be proposing rate and rubbish collection fee increases.  Some anti-crisis measures that assisted Spanish families and businesses in 2009 are to wind down in 2010, including the Spanish scrappage scheme “Plan 2000E” which boosted car sales in 2009 (which nevertheless ended the year at their lowest level for 15 years).  Many public works underwritten by 11 bn € of public money in 2009 are coming to an end putting particular pressure on the construction industry.  Both the car and building sectors already face the impact of the VAT rises planned for mid-2010.

Breakfast attendees dependent on the property sector expressed concern at the government’s plan to increase VAT on new build properties from 7 to 8% and another policy decision, by the Bank of Spain, ordering banks to provide for losses on the enormous property portfolios they have built up during the crisis.  Many fear that such a move risks wholesale “dumping” of properties onto the fragile property market already suffering from an overhang of unsold homes, rising numbers of repossessions and falling prices.  

Mr Baker concluded the meeting by commenting that “although recovery outside Spain combined with a continuation of very low Euro interest rates could see a weak recovery in Spain during 2010, this was by no means guaranteed.  Improvements in export-orientated industries, tourism and even coastal property could materialise but only with a government supportive of growth and intent on reducing not adding to the burdens of Spanish business”.  He called for the government to rebalance its deficit reduction proposals away from tax rises to spending cuts and to reduce the costs to firms of employing workers.

Background

Advoco Law & Accountancy intend to hold regular breakfast briefings and forums throughout 2010 for English-speaking business owners, managers and advisers to exchange ideas and discuss mutual concerns.

For background on the Spanish economic crisis and some of the themes reported here, see:

Tidal wave of repossessions in 2010
http://www.spanishpropertyinsight.com/buff/2010/01/11/tid...

Spanish car sales at lowest level for 15 years
http://spanishinsight.blogspot.com/2010/01/spanish-car-sa...

Spanish scrappage scheme
http://www.advoco.es/home/22-latest/34-spain-scrappage-sc...

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