Change of heart by the Spanish Government. Now they will increase Capital Gains Tax and not income tax to 50%

Spain studying boosting capital gains tax


MADRID, Aug 31 (Reuters) - The Spanish government is studying boosting capital gains tax but not income or corporate tax rates as it seeks to fund its rapidly expanding budget deficit, Prime Minister Jose Luis Rodriguez Zapatero said on Monday.


'This will be a moderate rise,' Zapatero told a news conference broadcast on Spanish television from Stockholm, where he had been meeting Swedish Prime Minister Friedrik Reinfeldt.

The rise in the tax would be reversed as soon as economic conditions so permit, Zapatero said.

With Spain's budget deficit heading towards 10 percent of gross domestic product this year, the Socialist government needs to staunch a decline in tax revenues hit by the slumping economy if it is to retain the confidence of bond markets.

While spreads of Spanish bonds over benchmark German bunds have remained moderate, due to a relatively low proportion of public debt to GDP, this could change in the next few years if the government does not show progress on its promise to cut the deficit back to 3 percent of national output by 2012.

Capital gains tax stands at 18 percent in Spain. The Socialist government initially suggested it would raise taxes on higher earners, but this attracted a storm of media criticism and Zapatero said income tax would remain untouched.

Story from Thomson Reuters

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