Spain Reduces Corporate Tax Rate

Spain’s prime minister, Mariano Rajoy, has announced a new stimulus plan to boost the country’s competitiveness, including €6.3bn of investments and a cut in the top corporate tax rate from 30% to 25%.

He told business leaders that the package would comprise financing of €2.7bn from the private sector and €3.6bn from the government, to spur investment in research and development and to help Spain’s ‘re-industrialisation’.

Rajoy’s announcement came after the International Monetary Fund’s (IMF) declaration that “Spain has turned the corner”, hailing a return to growth in the eurozone’s fourth-largest economy. However, he has rejected the IMF’s suggestion that the government should increase the rate of value added tax (VAT), which currently stands at 21%.

“The general idea is that taxes have to come down,” said Rajoy. “The goal is to leave more disposable income in the hands of families, improve the competitiveness of the economy, raise savings and above all else to boost employment.”

Spain emerged from its second recession since the 2008 global financial crisis late last year, but the ruling Popular party attracted 2.6m fewer votes in the recent European Parliament elections than it did in 2009. Voters have yet to be convinced that Spain is enjoying a recovery or that reforms are proving effective in reviving the eurozone’s fourth-largest economy. The country’s unemployment rate of nearly 26% is still one of the highest in the developed world.

The planned stimulus and tax cuts are also likely to fuel concerns over Spain’s public deficit, one of the highest in the European Union (EU). The latest estimate by the European Commission (EC) suggests that Spain will have a deficit of 5.6% of gross domestic product (GDP) this year, rising to 6.1% in 2015.

While the government has pledged to reduce its budget shortfall to less than 3% of GDP by 2016, the latest package could put that target even further out of reach. Spain’s overall debt load, the commission says, is likely to reach 100% of GDP this year.

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