Spain's tax reforms have increased poverty and done nothing to create jobs, says European Commission

Rajoy has been under pressure from the EU to raise taxes, but they are now criticising him for doing so

RAJOY'S fiscal reforms have made low-income households poorer than ever, says the European Commission – one of the governing bodies which ordered the Spanish president to make them in the first place.

As a result of 'adjustments' made to Spain's tax situation, including income tax (IRPF) and IVA – particularly since 2012 - those already struggling to make ends meet are now in dire financial straits.

At best, they are relying on their savings, in 15 per cent of cases, and on loans and credit cards in 10 per cent of households, just to cover basic necessities like utility bills, rent or mortgage and food.

Spain's bottom quartile earners have seen their income go down by 14 per cent a year since 2009, whilst the top quartile earners have barely lost 10 per cent of their income and in many cases, have in fact become richer.

According to the European Commission, the gap between Spain's richest and poorest is now the widest on the continent with top earners taking home 19 times the wages of those on low incomes.

Spain's authorities have yet to comment on these findings, presented by Hungarian-born Commissioner for Employment László Andor – but president Mariano Rajoy made these tax adjustments at the orders of the 'Troika', made up of the EU, the International Monetary Fund (FMI) and the European Central Bank (BCE).

Not only was Spain ordered to hike taxes to claw back more funds in order to reduce its State deficit, but the three bodies that make up the Troika have been putting pressure on Rajoy to raise them still further, calling for IVA to go up yet again.

Between July 2010 and September 2012, IVA rose from 16 per cent to 21 per cent, whilst basic-rate tax – retained at source pending adjustment annually according to an individual worker's personal situation – increased from 15 per cent to 21 per cent.

The European Commission highlighted the IVA and IRPF hikes in its report, released yesterday (Monday), and said the effects of IVA rises alone have had the same impact on household income as all the other fiscal reforms carried out by Spain altogether.

Retirees have also seen their situation worsening due to pensions having been frozen or cut, meaning that in combination with goods and services now over a third more expensive, they have gone from managing comfortably on their income to barely being able to make their money stretch until they are next paid.

A similar situation has arisen in the UK, although to a lesser extent than in Spain, with the lowest-income households suffering the greatest reductions in their earnings as a result of tax reforms.

In Greece and Portugal, however, these revisions of the tax and social welfare system made everyone's income across the board go down, from the poorest to the richest, by roughly the same proportion.

Inequality has increased and the risk that the very tentative economic recovery in the EU will not improve finances or job prospects for the worst-affected is extremely high, Brussels reports.

Reforms in Estonia, Latvia, Lithuania and Romania have seen the opposite effect, with the income and lifestyle of the worst-off residents actually improving in relative terms, and in Italy, only the very rich have seen a drop in their earnings.

Taking into account fiscal reforms carried out between 2008 and 2013 – covering the reign of two radically-opposing government, the PP and the socialists – the impact on the ordinary earner and those on low wages in Spain has been among the greatest in Europe, says Commissioner Andor.

 

 

Only the rich in Italy have been affected by fiscal reforms, says European Commission (photo: Milan cathedral)

The report claims that even though the Eurozone and the European Union is slowly beginning to grow, neither this nor the fiscal reforms carried out in the hardest-hit nations – Spain, Portugal, Greece, Ireland and the UK – have translated into higher levels of employment.

In fact, unemployment and financial hardship has risen and the EU is 'a long way' from recovering to a point where jobs are being created and most of the population is in employment, says Commissioner Andor.

Employment showed signs of increasing stability in 2013, with a rise of 0.1 per cent in the third and fourth quarter, mainly in the service sector, whilst job loss in the construction and industry sectors decreased.

But figures for the last six months of 2013 show that an increasing number of member States have not seen any rise in employment to accompany the steady growth of their national economies.

Jobless figures in Europe for January 2014 reached record levels, with 26 million people – 10.8 per cent of the working-age population of the EU-28 – being unemployed.

In some member States, including Spain, jobless statistics are higher than they have ever been during the financial crisis, and are above the European average.

Spain's unemployed population comes to over 26 per cent, or nearly six million people.

The European Commission report warns that in countries where the job market is showing no improvement and where household income for the lowest earners continues to decrease, poverty and social exclusion are likely to continue to rise over the course of 2014.