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September 29, 2009

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Home » Business » Economy

Spanish premier defends tax rises

SPAIN'S prime minister has defended his plans for 11 billion euros (US$16 billion) in tax increases even though the country is stuck in recession.

The government must boost revenue to chip away at a deficit ballooning from payment of unemployment benefits and other spending, Jose Luis Rodriguez Zapatero said yesterday.

He said the government had to keep Spain from smothering in debt, even if tax hikes during hard economic times were a bitter pill. Even with the tax increases, the draft foresees a central government deficit in 2010 equivalent to 5.4 percent of economic output, 8.1 percent if regional governments are included.

Both are far above the 3 percent limit set by the European Union.

The Cabinet approved a draft budget on Saturday and it will now go to Parliament, where Zapatero lacks a majority.

He will need support from smaller parties to get the bill passed, and will start negotiating with them this week.

Among other things, the bill calls for raising value-added tax paid by consumers and levies on bank interest and stock dividends.

Labor unions have criticized the package by saying the working class will be hardest hit.

Conservative opposition leader Mariano Rajoy said the rise in value-added tax will hit lower earners proportionately more because the rate is the same for everyone.


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