Spain budget deficit blowing out massively - time for more bull shitte from PM Rajoy about how great things are going or is he heading to see the soccer match instead ? And as austerity has already taken its toll , what will additional tax hikes do to Spain - hikes may appease the EU but what about the men and women who will be protesting loudly in the streets ?

http://www.cnbc.com/id/47967815

Spain Considers Sweeping Tax Hikes to Please EU

Published: Tuesday, 26 Jun 2012 | 4:38 PM ET

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By: Reuters

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Spain is considering raising consumer, energy and property taxes, the government said on Tuesday, as it struggles to reduce a public deficit that may have already exceeded one of its budgeted ceilings for the full year.

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Underlining the state of Spanish finances as it negotiates an international bailout for its banks, the central government deficit was 3.41 percent of gross domestic product from January to May, close to a year-end target of 3.5 percent, Treasury data showed.

Madrid is under intense pressure by nervous debt markets to tame one of the highest public shortfalls in the euro zone and the government will be hoping to have a new slew of austerity measures to show European leaders at a summit later this week.

The high central government deficit figures were due to early cash transfers of almost 9 billion euros to Spain's struggling regions had stretched the deficit to 36.4 billion euros ($45.4 billion) by the end of May, the Treasury said.

Excluding the transfers, which are made each year but were paid early this time to help the cash-strapped regions, the deficit would have been 2.38 percent of GDP  , it said.

The central government deficit, announced on Tuesday, does not include figures from the social security system or the 17 devolved regions.

At the end of the first quarter, and thanks to the payments, the regions were ahead of their targets, though whether that will bring the overall shortfall in line with end-of-year goals will not be known until mid-year regional accounts are published.

With the economy in its second recession in three years slashing the total Spanish deficit from 8.9 percent of GDP last year to 5.3 percent this year, as has been pledged by the government, remains a serious challenge.

Prime Minister Mariano Rajoy has announced tax hikes and spending cuts worth around 45 billion euros, but he had so far resisted calls from the European Union and the International Monetary Fund  to rise the value added tax (VAT).

In an unexpected move two days before the EU summit, where measures to ease the pressure on Spain's borrowing costs will be discussed, the government said on Tuesday it was now considering increasing the rates on certain products and services.

Madrid's short-term lending costs nearly tripled at an auction on Tuesday from a month earlier while demand for the paper shrank as investors demanded ever higher premiums to hold Spanish debt.

Spain's current VAT rate is 18 percent, one of the lowest in Europe, but many products are charged at a reduced 8 percent or a "super-reduced" 4 percent.

"The ministry is studying reclassifying certain products and services that have reduced or super-reduced VAT," a spokesman for the ministry said.

Madrid is also considering eliminating tax breaks on housing after reintroducing the measure as one of the first decrees the center-right government announced after being sworn in December.

It is also considering introducing a so-called "green tax" on gasoline, following recommendations by the European Union, Treasury Secretary Marta Fernandez Curras said.

However, with the economy contracting at a very quick pace, some say increased austerity could be counterproductive.

Mark Miller, an economist at Capital Economics, said hitting the deficit target "is going to be pretty tough the way things are going. There's a lot of austerity ... but economic activity is slowing sharply too."

The low activity is already hitting tax receipts, with revenues from value-added tax down 10.1 percent in the January-May period from a year earlier, the Treasury said.

http://globaleconomicanalysis.blogspot.com/2012/06/spain-has-budget-deficit-of-341-of-gdp.html

Tuesday, June 26, 2012 4:31 PM

Spain Has Budget Deficit of 3.41% of GDP Through May (Not Counting Regional Governments); Target for Entire Year was 3.5%

Spain has reached it budget deficit target of 3.5% of GDP. The problem is, Spain did it in 5 months, not 12. Via Google translate, Spain has Budget Deficit 36.364 Billion Through May. 

 The State had until May a deficit of 36.364 billion euros in national accounting terms, equivalent to 3.41% of GDP, representing an increase of 30.6% compared to 2.59% in the same period 2011. The figure almost touches the 3.5% target it has set the state for the entire year.

Secretary of State for Budget, Marta Fernandez Currás, said that Spain suffers from a weakness of the collection because it crosses the "worst" macro.

Executive forecasts are ending the year with a deficit target of 3.5% for the state and 5.3% of GDP for the whole of the government.

Regional Debt Not Included in Above Totals

My friend Bran who lives in Spain adds this explanation ...

 Clearly, Spain's deficit is well off track . The primary difference between the "state" and the "whole of the government" is regional government debt.

There are two main components: State (3.5% objective) and Regional (1.5% objective). The Total Public Administration deficit, which is supposed to come in at 5.3% for the year, is a combination of the two (+ 0.3% from somewhere else). The current Regional figure is not given in the article, but it is likely to be not too far off 1.5% this year.

The government says that this situation is due to a drop in revenue.

Taxes Going Up, 456 Prescription Drugs Dropped

The debate now is over how much taxes will go up and what government services are dropped. Bran supplied a link to 456 prescribed drugs dropped from funding to save €440 million.

 The Ministry of Health, Social Affairs and Equal propose a list of 456 drugs that may be excluded from public funding and, as calculated by the department led by Ana Mato, would be a net savings to the NHS of 440 million euros.

If approved this measure, the state will cease to provide 60% of these medications as usual and the citizen has to bear the full amount. These drugs also were free prescription for retirees, which from now on you should pay them.

How long before Brussels sends in a team of experts telling Spain what it needs to do? Three hours or three days?