Thursday, September 02, 2010

Spain's deficit is down sharply thanks to an unpopular cocktail of tax hikes and austerity cuts — good news for a government fighting to ward off fears it might need a bailout like the one that saved Greece from bankruptcy.

[...] The figures do not include spending by regional governments, however, which will be key to helping the government meet its stated goal of cutting the deficit from 11.2 percent of GDP last year to 3 percent in 2013.

The report says revenue rose 10.4 percent through July, largely due to a higher VAT rate, a tax on goods and services.
Except that, as the piece says below,
But this is a one-time boost widely attributed to Spaniards rushing to buy big-ticket items like refrigerators and washing machines before those tax rates rose on July 1.
So let me get this straight: it wasn't the tax hike -- which kicked off in July, yes, but since the VAT returns are done quarterly they won't really have an effect in tax income for a couple more months. It was the anticipation of the VAT increase which made people hurry and buy big-ticket items before the tax hike went into effect. So tax hike had an effect, yes, but not what the government had in mind. In fact, it showed why it was such a bad idea: once the higher VAT is on, people will buy less, therefore the government income will go down.

Plus, on the other hand,
Jobless claims in Spain rose 1.6% in August, an increase of 61,083 against the prior month, bringing the total number of unemployed to 3,969,661. The rise is the first after three straight months of declines in jobless claims. On an annual basis, jobless claims rose 9.4%. Jobless claims had trended downward. "This increase in jobless claims, even though it's not good news, still is much less than the past two years and maintains the tendency for the data to gradually to return to where it was prior to the crisis," said Maravillas Rojo, Secretary General of Employment in Spain. Euro-zone data released last week showed Spain's unemployment rate remains the highest in the region, climbing to 20%.