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Spain proposes tax hike to dodge EU deficit penalty

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Spain proposes tax hike to dodge EU deficit penalty
Photo: Images Money/Flickr
08:47 CEST+02:00
Spain's acting Economy Minister Luis de Guindos on Tuesday proposed hiking corporate taxes to avoid a fine from the European Commission for repeatedly failing to bring government deficits into line.

"We are going to propose a measure regarding corporate taxes" that will raise €6 billion ($6.6 billion), he told a televised news conference in Brussels after eurozone finance ministers agreed to officially begin a
sanctions procedure
against Spain and Portugal.

The two countries now have 10 days to lobby the EU to impose no penalty.

The European Commission, the EU's executive arm, will consider their arguments and must decide on sanctions within 20 days.

Under EU rules, the commission could impose fines of up to 0.2 percent of gross domestic product (GDP) on eurozone countries that repeatedly ignore the deficit limits - but to date it has not dared to use its full power.

In Spain's case the maximum fine could amount to nearly €2.2 billion, based on its 2015 GDP as reported by the EU statistics agency Eurostat.

De Guindos reiterated that he was "convinced" that Spain would avoid a fine because its economy had turned a corner and was posting steady growth after being hit hard by the eurozone debt crisis.

"It would be a huge paradox is the European economy which has had the biggest turnaround in recent years and which is growing the most and creating the most jobs...were to be fined," he said.

Spain in 2015 reported a deficit of 5.1 percent of GDP, still way off the target of 4.2 percent set by the commission and the official limit but way down from 9.07 percent in 2011.

The government has vowed to bring the deficit below an EU-limit of 3.0 percent of GDP next year, a year later than it initially forecast.

Spain has been governed by a caretaker government with limited powers since an inconclusive December election.

De Guindos' conservative Popular Party (PP) won a repeat general election on June 26th, boosting its number of seats in parliament, but still fell short of an absolute majority.

It is currently in talks with other parties to try to form a government.

The PP had campaigned for last month's repeat polls on promises to lower taxes while reducing the public deficit at the same time.

The Spanish economy, the eurozone's fourth largest, expanded by 3.2 percent last year and the government predicts it will grow by over 3.0 percent this year.

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