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New Spanish Austerity measures. Ramping up the VAT..
Old 07-11-2012, 10:05 AM   #1
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New Spanish Austerity measures. Ramping up the VAT..

Amongst the austerity measures the Spanish announced today, ramping up their VAT (consumption tax) was the one that caught my eye.

Having ramped it up to 21% (!!!) now in Spain though, I am not sure it is going to have the intended consequences they anticipate.

I personally am a fan of consumption taxes and user fees. In fact, I would prefer to revamp the taxation system to put the emphasis on them instead of income taxes. (Of course, that is my bias being a saver and not a consumer).

Based on my experience in Canada with the GST/HST, as the percentage tax increases it drives a certain and significant ratio of things (particularily services) "underground". The higher the tax, the higher the ratio. Go to high and the portion of the economy which goes underground (and is no longer taxed at all) outweighs the gains made by increasing the tax burden on what remains.

Considering how tired most Europeans are of "austerity" I wouldn't be surprised if that happens for the Spanish.

(Never mind that they could of all used a swift, healthy kick full of austerity up the backside in the first place over the years to avoid this mess... but I digress... )
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