VAT will go up almost immediately from 18% to 21%. Thousands protested against government measures.
Spanish PM Mariano Rajoy has announced a sales tax rise as part of austerity measures aimed at cutting the public budget by EUR 65bn. VAT will go up almost immediately from 18% to 21% and there will be a 3.5bn euro cut in local authority budgets. EU officials welcomed the changes, made in return for a eurozone bank bailout.Thousands of people are protesting in Madrid against government measures, and police have fired rubber bullets to quell the demonstrations.The people have joined a march by miners campaigning against major cuts to industry subsidies. The prime minister, interrupted several times by opposition MPs, told parliament that the changes he was announcing had to be adopted without delay.Eurozone finance ministers have agreed to provide 30bn euros for Spain’s troubled banks by the end of the month and to give Madrid an extra year – until 2014 – to hit its budget targets.Mr Rajoy acknowledged that the VAT rise contradicted a campaign pledge made before his Popular Party came to power. As recently as January he said there was no plan to raise the tax. “I said I would lower taxes and I am actually raising them. Circumstances change and I have to adapt to them.”The package of measures would cut the budget by 65bn euros over two-and-a-half years, he said. “The excesses of the past are being paid for right now,” he said, adding that Spaniards had never before experienced such a recession.Without a cut in Spain’s budget deficit, public services would be put at risk, he said. Savings of 3.5bn euros will be made to government administration budgets, with local authorities banned from offering services they cannot afford and the number of councillors reduced by 30% in some areas.