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Deepening Recession not aided by Stealthy Taxation

Recently, a report estimated that over half of town councils in Spain (approximately 4,000) are so indebted that they hover on the brink of bankruptcy. Now, as they battle to alleviate substantial debts incurred by overspending during the boom years, Spanish councils are coming under fire for implementing measures which protest groups have christened ‘taxation by stealth’.

In towns, cities and coastal resorts across Catalonia free parking bays have been removed whilst fines levied for minor traffic offences have become more frequent. The complaints of drivers are increasing, with many asserting that fines for infractions like speeding are not being issued because of road risk but because of the revenue they generate. One Madrid motorist was fined for driving through a short, well lit tunnel without headlights on. In her opinion such action was taken because it was ‘an easy way to generate €60 and nothing to do with any risk posed.’

Meanwhile, a city south of Barcelona, Tarragona, has had almost 4,000 free parking spaces reallocated by the council as paid parking only. Protests against these steps have been fierce with citizens painting over lines, boycotting ‘pay and display’ areas and vandalising ticketing machines – to the tune of €18,000 of damages. Extra police have been drafted in to tackle the increasing problem.

A spokesman for local protest group Plataforma Stop Parquimetres voiced the opinion that by taking away free parking the council had effectively introduced a new tax. Amanda Casas stated: ‘It’s a blatant attempt by city authorities to raise revenue. And the underhand way they are going about it is shameful.’

The council has responded to such arguments by insisting that decisions to remove free parking bays and step up traffic infraction fines have not been made in order to procure revenue but are actually ‘part of an effort to improve traffic flow in the city’.

Whether or not this is true, ‘taxation by stealth’ could be superseded by bigger issues over the coming months as official data released this morning has revealed the Spanish recession to be even deeper than feared.  The report released by Madrid-based National Statistics Institute has revealed gross domestic product contraction in the second quarter to be greater than the 0.3 experienced in the first.

In line with a prediction made on the 30th July, GDP fell a further 0.4 per cent in the second quarter.

The report also stated that the nation’s austerity effort gave consumer spending a battering in the second quarter, seeing it drop by one per cent. Exports of goods and services rose 1.6 per cent, government spending declined 0.7 per cent and investment dropped 3 per cent in the same period.

Despite it initially being stated that the Spanish economy grew by 0.7 per cent in 2011, the National Statistics Institute has now revised this figure to 0.4 per cent.

Although this is certainly not good news for struggling Spain, Christian Schulz (economist with Berenberg Bank) expressed concerns that the worst is yet to come. He stated ‘We’re not through the downturn and it will turn worse in the next quarters. There is a risk that things get out of control and Spain goes the way of Greece which would discredit the austerity strategy and be negative for getting the euro-zone crisis under control’.

On September 1st the VAT increase from 18 to 21 per cent will come into effect and there are hopes that it may go some way towards relieving the expanding pressure piled on household finances. Also, at the close of August public finance figures are due and these may give a firmer indication of just how much Spain is struggling with reducing its deficit. The nation had planned on cutting its deficit to 6.3 per cent of GDP in 2012 in readiness for reaching the EU limit of 3 per cent of GDP in 2014.

Economists have made their own predictions for Spain. According to a Bloomberg News Survey the majority of participants are forecasting an average GDP contraction of 1.6 per cent for this year and 0.9 per cent for 2013.