One amongst several, of course, but a rather big one: its ceiling for expenditure is 133,259m euros for 2014 but its tax system is not working. You see, although Spain has one of the highest tax rates in the European Union, it actually brings in less than most.
Hacienda hardly manages to rake in 37.1% of the GDP (Gross Domestic Product), which is 9% below the EU average, which is quite surprising as it is the 4th largest economy of the Euro Zone.
Put another way, Spain has the same tax imposition as Belgium, Denmark or Finland but actually takes in less tax than Malta, Cyprus or Estonia. Curious, eh? More than ‘curious,’ it is disastrous, but there you go.
But things look even worse if you widen the comparison to the 28 members of the EU: Spain is up there with Sweden when it comes to tax imposition but just manages to keep ahead of Bulgaria, Rumania and Lithuania when it comes to filling the coffers.
This anomaly simply means that Hacienda is grossly inefficient and consequently Spain is going to have a hard time pleasing Europe over its finances.
Brussels took one look at the submitted 2014 national budget for Spain and more or less told the Spanish Government, “You ain’t going to make it, Son,” but in more diplomatic and technical terms. This is why they have “recommended” further cuts in public spending. But it is more than a recommendation; its diplo-speak for, “get it done.”
Mind you, Spain isn’t the only country that received a shot across the bows because Italy Luxembourg, Finland and Malta also received similar ‘advice.’
Spain promised to get its deficit down to 5,8% by the end of 2014 but the EU believes that the Government will not achieve this pledge using the proposed 2014 budget, which is at the moment before the Spanish Senate.
But for all that the Government tries to reassure the EU and more importantly, the Spanish general public, that things are going according to plan, the truth is that it’s a case of simple mathematics:
For the Government to shave off 7,000m euros in 2014 to get the deficit down from 6.5% to the promised 5.8%, and then shave off another 16,000m during 2015 to bring it down from 5.8% to 4.2%; i.e., the goal, then it only has two options: cut back on public spending or raise taxes.
Quite apart from the political (electoral) disaster that it would be for the Partido Popular to raise taxes (yet again) the EC and the ECB have already said that this is not a good idea – Hacienda leaks too much and the economy would probably tank into the bargain.
So, the only other option is to sort out Hacienda once and for all… better known as the Gran Reforma Fiscal, already announced by the Minister for Hacienda, Cristóbal Montoro for Spring next year.
Back in July, the Board of Ministers launched a commission, headed by Professor Manuel Lagares, charged with knocking up a route map for the new fiscal model by the beginning of next year. At present the tax rate is too high, but at the same times has too many openings for tax deductions, especially for companies. On top of that, existing tax fraud is calculated at around 25% of the GDP; i.e., 250,000m euros.
Good luck with that one, fellas!
(News: Spain)