High earners face higher taxes

CENTRAL Government were yesterday putting forward proposals aimed at increasing personal taxation which could rake them in a further 200 million euros next year.

It looked to be a tougher than expected 2011 budget, deepening an austerity drive and taxing the rich more heavily as it looks to boost confidence in a fragile economy ahead of a general strike.

Spain aims to slash its deficit while still rekindling economic growth and tackle the euro zone's highest unemployment rate. Concerns about burgeoning debt in economies on the periphery of the euro zone have weighed on the euro currency.

The government has created two new categories of the PAYE system which mostly affects those on the highest income. Those earning between 120'000 and 175'000 euros a year will be taxed at a rate of 44 percent and those earning more than 175'000 euros at 45 percent.

Spanish Finance Minister said at a press conference that the new measures will affect around 100'000 people and not 165'000 as had been suggested in the last few days. The Minister explained that the new measures will only affect employment income and not those who pay tax on capital or savings. The added tax on high incomes said Salgado will mean another 200 million euros for the government next year on top of the 300 million already approved as part of the budget yesterday.

Political commentators ventured that the move looks aimed at placating its core voter base ahead of a general strike due to take place next Wednesday in protest at social spending cuts and a controversial labour reform that reduces generous severance payments. “It's a purely political gesture, probably needed to get the budget voted through parliament,” said one German financial analyst.
The economy is meanwhile expected to have accelerated to grow at 2.7 percent by 2013 after shrinking 0.3 percent in 2010, but IHS Global Insight said the growth outlook appeared too rosy. “A key concern is that the government is projecting the economy to grow by 1.3 percent in 2011 which is unlikely given the fallout from staggeringly high unemployment and the implementation of the tough austerity measures.”