Bloomberg News

Spain Raised Taxes in ‘Act of Responsibility,’ Guindos Says

January 03, 2012

(Adds comment from budget minister in last paragraph.)

Jan. 2 (Bloomberg) -- Spain’s announcement last week of tax increases and spending cuts was an “act of responsibility” to prevent the economy from falling into a “practically impossible” situation, Economy Minister Luis de Guindos said.

“Spain cannot permit itself to announce a public deficit of 8 percent without its government taking in quick order some actions that, I repeat, are not pleasant,” de Guindos said in an interview with Cadena SER radio today. If Spain hadn’t taken steps to address the deficit, they would have been “imposed” on the country by others, he said.

Prime Minister Mariano Rajoy announced 14.9 billion euros ($19.3 billion) of spending cuts and tax increases on Dec. 30 after concluding the budget gap would reach 8 percent of gross domestic product in 2011, more than the previous government’s 6 percent target. The final number may slightly exceed 8 percent, de Guindos said today, adding that the government acted against a backdrop of negative economic growth.

“The message is that it’s necessary to make a sacrifice over coming months,” de Guindos said in the interview. He said the government has to pass reforms that will help counteract the “contractive” impact of tax increases and spending cuts.

“In Europe, the crisis is being felt with greater intensity and we all have to be conscious that if we only tighten the screws in terms of economic adjustment and cutting costs, we are all getting ourselves into a mess,” he said. The government doesn’t plan increases to value-added tax for now, he said.

‘Aggressive’ Steps

Spain is seeking to overhaul labor rules and is preparing “aggressive” steps to further clean up assets linked to real estate held by the country’s lenders, de Guindos said, adding that the measures must come at minimum cost to taxpayers.

“In the coming weeks, we should have a clear and transparent framework for action,” he said. “It’s important to have a new round of consolidation in the industry and what we should end up with is a financial sector that’s able to grant credit in the near future.”

The government is renewing a program of state guarantees of as much as 100 billion euros for bond sales by banks that can be used as collateral for tapping funding from the European Central Bank, de Guindos told SER. The banks will have to pay a “significant amount” to use the guarantees, he said.

The slippage in the deficit numbers was shared among “all public administrations,” de Guindos told SER. Yesterday, Alberto Fabra, the head of the regional government of Valencia, announced 1 billion euros of cuts to address its deficit.

Speaking at a swearing in ceremony for ministry officials in Madrid today, Budget Minister Cristobal Montoro said the government will announce fresh economic-policy decisions at its Cabinet meeting this week. The steps will show that Spain is a country with drive and initiative, he said, without specifying what they will be.

--Editors: Jeffrey Donovan, Alan Crosby

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net; Sharon Smyth in Madrid at ssmyth2@bloomberg.net.

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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