Saturday, August 22, 2009

Spain’s cash-strapped Socialist government is poised to emulate the UK and increase taxes on the rich, reversing its policy of tax cuts and prompting protests from the conservative opposition.

The impending U-turn – designed to plug the gaping budget deficit arising from the global economic crisis – was signalled this week by José Blanco, public works minister. “If we need to raise certain tax rates in order to guarantee social policies or public investment, then we’ll have to do it,” he said in a radio ­interview.

“I believe in helping those who most need it, and if in order to help the needy those who can most afford it have to tighten their belts in times of hardship, then we must say so clearly to the public.”
Why doesn't the government start tighting its own belt? They're spending money like drunk sailors. They started already when they thought the economy was strong; upon taking over, they found the coffers were full and started giving it away (€400 to every taxpayer; €2,500 to the parents of every newborn, and so forth) not thinking that it's precisely in the good times when you need to hoard in case it gets tough (plus it was clear it was going to get tough). It was like a chile who suddenly gets hold of some unexpected money and, instead of using it wisely, he buys candy, burgers and a Wii to himself and his friends. Now they need the money and they don't know where to get it. But raising taxes is not the solution:
My feeling is that the Spain of Zapatero looks more and more like the Hungary of Gyurcsany with every passing day, and I say this more from the point of view of the twin deficit problem, and the impression the administration gives of things being totally out of control and no one knowing what to do, than anything else.

I am not at all party political, and my observation should in no way be read in that sense. The situation has only deteriorated since Solbes and Vergara were ousted, and the only mystery for me is why exactly they were replaced with a team who have no understanding of macro economics whatsoever. For the record, I predict the IMF will have a permanent delegation in Madrid before 2011 is out.