Spain's Prime Minister Mariano Rajoy in the Congress of Deputies on Wednesday. (Efe)
Spain is the country in Europe with the highest unemployment rate and with the third largest public deficit, after Greece and Ireland, but it is also among the countries with the continent’s highest tax rates.
On Wednesday, Prime Minister Mariano Rajoy announced that they will be increased even more. The government will raise value-added taxes, which will take effect already on Friday, a measure that is part of a package of austerity measures intended to cure the economic crisis.
Only Belgium, Denmark and Sweden, which are countries with a strong welfare state, have higher nominal taxes.
Above its European neighbours
In the case of Spain, the tax rates are 52 percent for income taxes, 30 percent for corporate taxes and 21 percent for value-added taxes once the new measure enters into effect.
In Germany, France and Great Britain, where tax rates historically used to be high, they now pay less tax than in Spain.
The European average tax rates for income tax is 43.1 percent; for corporate tax it is 26.1 percent and for VAT it is 20 percent.
What is most important, however, is the speed at which it is being raised. In the beginning of the crisis, Spain was one of the countries in Europe with the lowest tax rates, but since 2010, income taxes have increased by 7 percent and VAT by 5 percent, while there has also been a revision on VAT nominal rates for certain products, such as tobacco, alcohol and hydrocarbons. On Wednesday, the government also announced it will increase environmental taxes.
When VAT was introduced in Spain in 1986, the regular rate was 12 percent, about half of the current rate. After the new revised rates, even the reduced VAT level – which will be raised from 8 to 10 percent – is higher than that of France (5.5-7 percent), Holland (6 percent), Germany (7 percent) and Great Britain (5 percent), and on the same level as in Italy and Austria.
Low tax revenues in Spain
What is most striking, however, is that only Ireland –with much lower rates–, Greece and Portugal bring in less than Spain, according to the annual statistics published by the European Commission, which analyses the fiscal trends in Europe.
The tax revenues only reached 31.9 percent of gross domestic product in 2010, compared to the Eurozone average at 38.9 percent.
The reason for this low tax revenue is the drop in tax payments after the collapse of the construction sector, which led to a total tax revenue of €433bn in 2007. In 2011, however, the total state income from taxes for the public administrations dropped to €377bn, which means a decrease by €56bn that the government now tries to regain with the new increase.
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