Rajoy told the Spanish Parliament he would raise the value-added tax by 3 percentage points to 21% as part of a larger package of tax hikes and spending cuts aimed at trimming the public budget by €65 billion over the next 2-1/2 years.
The prime minister also announced a deep reform of the public administration, with cuts of 30% in the number of local counselors and a redistribution of mayoral positions, as well as sharp reductions or even closures of redundant public bodies, EurActiv Spain reported.
In previous statements as the opposition leader, Rajoy blasted his predecessor José Luis Rodríguez Zapatero precisely for his intention to raise the VAT. But this time he said he needed to be pragmatic.
“We welcome the announcement of the new fiscal measures by the Spanish government,” said Simon O’Connor, spokesperson for Economic and Monetary Affairs Commissioner Olli Rehn.
“It’s an important step to ensure that the fiscal target for this year can be met. We also note that Prime Minister Rajoy has clearly indicated in his speech to Parliament that his government intends to follow the country-specific recommendations put forward by the Commission and adopted by the [Ecofin] Council [on 10 July]”.
Asked if the new austerity measures wouldn’t in fact aggravate Spain’s recession, O’Connor said he would not be able to comment before the Commission receives the details of the proposals.
With the economy in recession, unemployment high and tax income falling, Spain is struggling to meet tough deficit-cutting targets that it has agreed on with the European Union.
This week the EU agreed to give Spain more time, until 2014 instead of 2013, to reach a public deficit of 3%, and the country's deficit goal for this year was also relaxed, to 6.3% of GDP. However, even that easier target is seen difficult for the country to reach.
But austerity is not easily accepted by the Spanish society. A miners’ protest degenerated on Wednesday, with police firing rubber bullets at protestors, wounding several people.
The miners, joined by public sector workers and unions, rallied noisily in central Madrid at the climax of a 44-day protest against a 60% cut in coal subsidies, which they say will force mines to close and put many out of work.