Courtesy of Mish.
Cristobal Montoro, the Spain’s finance minister has made a liquidity destroying proposal to tax short-term financial transactions at an astonishing 56% tax rate. Businesses are already upset over hikes in the VAT and have threatened to leave Spain.
Interestingly, in spite of raising taxes elsewhere, the VAT was lowered on the highly subsidized renewable energy sector.
Why? Here is the answer: “Secretary of State for Finance, Ricardo Martinez Rico, is the leading advisor in the industry”.
Prepare for Spanish Implosion
Here is the “as-is” Google translation of the El Econimista article Waiting for the Intervention. Emphasis in bold not added.
The Bundesbank is opposed to the purchase of deduda, the only thing that can save Spain and Italy. Autonomy, conflict, power and government crisis rumors complicate everything.
The situation is out of control. The government approved last week the biggest adjustment of his story in hopes that it would serve to calm the markets. But it was not. The risk premium yesterday overcame the barrier of hundred basis points, something never seen, and the bond closed at 7.27 percent. The first question that arises is what should make efforts so painful as the increase in VAT or removal of the extra pay of officials if markets continue to punish us hard. It would be naive to think that just announced a big cut, things would begin to change. There are still many uncertainties that sow mistrust.
The fine print of 65,000 million adjustment shows that there is more emphasis on income than expenditure. Tax revenues provide about 38,000 million, compared to 27,000 in less spending. This, coupled with the rise in income tax, makes Spain one of the countries with the highest direct and indirect tax burden on the planet Earth. Economists warn that this tax increase may cause a contraction in gross domestic product (GDP) higher than expected by the Government. Especially in 2013, in which the drop exceed 1 percent, twice the official estimate.
Apart from the contradictions of the official figures of the adjustment and the controversy, was put in doubt the 22,000 million in revenue under VAT, only so far this year has accumulated a fall of 10 percent. The increase will boost the economy submerged and can neutralize the expected increase in revenue, defended himself as finance minister, Cristobal Montoro, as opposed to undertake this measure. The general impression is that more cuts are to be decided. Montoro himself fed this thesis to warn this week in Congress that state coffers are empty.
The other settings should focus on the regions and aim to remove 427,000 employees created by them during the last ten years (see story on Monday in elEconomista). However, this week has been strong resistance from regional governments to make further cuts. The call of the President of the Generalitat, Artur Mas, a regional rebellion against the Government is a paradigm for stimulating this international distrust.
Many people wonder, moreover, what moral authority left to the PP’s general secretary, Maria Dolores de Cospedal, to convince the rest of communities governed by their party, when his government of Castilla-La Mancha is among reprimanded. No, of course.
I do not think right now an investor in and outside our borders who believe in the autonomy will obey Montoro. The finance minister was guilty of naivete in advance at the beginning of the year 5.176 million for half of the estimated settlement funding system because it has stopped to tighten their belts. In addition, ICO 15,000 million in loans to cover the debt did not help anything….
