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Wednesday, April 11, 2012 1:39 AM

Slow Road to Hell: Spain Entertains VAT Hike

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Of all the inept policy moves in the midst of a clear depression, hiking taxes is right at the top of the list. Yet, that is the path Spain is on, because it will not meet its budget projections.

Here is a link to an amusing "as is" Google translation of an article on El Econimista whose headline reads "The Government will raise the VAT if they fail the current fiscal".

What caught my eye was the translation of the last sentence that reads "Therefore, it is possible that eventually have to raise this popular tax before the deadline."

I was laughing out loud at that sentence because taxes are never popular. To be sure, I did not precisely understand the correct context of that sentence.

My friend Bran who lives in Spain provides a better translation of the last sentence as follows:

Therefore it is not ruled out that the 'populares' (a common term used to denote the PP political party) would have to raise the VAT before planned.

That certainly makes more sense. However, the rest of the translation is suspect as well.

Self-Destruction Coming Up

Gonzalo Lira who lives in Chile, and with whom I have had (and still do) vehement disagreements regarding hyperinflation, graciously supplies the gist of the entire article in spite of those disagreements.

Lira writes ...

Hello Mish

The upshot of the piece is that if the tax amnesty doesn't work, Spain will somehow have to raise money to meet the Brussels-imposed deficit targets for 2012 and 2014.

However, the Spanish government is loathe to raise taxes, much less the VAT, because the government is aware of how counterproductive to the economy raising the VAT would be.

Tacitly, it sounds like they're worried about a popular backlash to raising the VAT, or any other tax. Nevertheless, Brussels is pushing for tax increases.

Carlos Floriano (PP spokesman and Vice Secretary) says that anything and everything will be done to meet the 5.3% deficit target this year, and the 3% target for 2013. Nonetheless, he's reiterating that raising taxes and VAT is not on the table.

According to the Ministro de Hacienda (eq. to Treasury Secretary), if the tax amnesty and the hard-core tax collection of "impuestos IRPF" (literally "income tax on physical people"—personal income tax) are not successful, then maybe other measures will be considered, including presumably raising the VAT.

The last paragraph says that Brussels doesn't think any of this stuff will work. The very last sentence is a colloquial expression. The essential idea is that if all else fails, Brussels will push Spain to implement a hike in the VAT sooner than expected.

From the tone of the article, the eurocrats in Brussels are the "Evil Empire". Thus, the article is an attempt to make the government look good, sensible, and trying to help the Spanish working man.

Frankly, reading the tea-leaves, it's as if the government and the reporter are setting up the eurocrats as the bogey man.
Slow Road to Hell

Lira had some choice but unprintable words to say about the "wisdom" of these tax hikes. I certainly agree.

The stupidity in Brussels is staggering. The one sure-fire way to destroy Spain, right here, right now, is to hike taxes.

Spain should see the writing on the wall and default now. If Spain doesn't, it will face a slow road to hell just as happened to Greece.

Mike "Mish" Shedlock
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