Andrew EdePalma25/06/2020 00:43
TW
2

The governor of the Bank of Spain has argued that IVA (VAT) offers the greatest "margin for improvement" for generating tax revenue. He is supported by the IMF and the European Commission. Yet IVA is pretty much the only tax mechanism that the government is not considering.

The government clearly does have to address its finances. No one should be under any illusion that it will not be raising taxes. The principal sources that it is contemplating include business tax and high earners' income tax. The General Council of Economists has rejected the increase for businesses, maintaining that the burden is already higher than in, e.g., France and Germany.

Might the government change its mind on IVA? The Bank, the IMF and Brussels all suggest that there is scope to address the reduced and super-reduced rates of 10% and 4%. Into the former falls the tourist rate of IVA, something that business has been demanding should be further reduced in order to aid competitiveness.

The general rate of IVA was increased from 16% to 18% in 2009 as financial crisis began to take hold; the reduced rate went up from 7% to 8%. The Rajoy government, pursuing austerity, then raised the rates to 21% and 10%. The current government is perhaps wise to leave them be, but higher rates for business plus green taxes, e.g. the air travel tax, will likewise be condemned for harming competitiveness. But the government is going to have to use fiscal measures of some form. They're unavoidable.