Spain looks to higher taxes to rein in deficit

Spain's government Saturday approved a draft budget providing for tax
hikes worth nearly 11 billion euros to rein in the deficit as it
struggles with recession and Europe's highest jobless rate. "The sum
of these measures will result in revenue of around 10.95 billion
euros (16.07 billion dollars), or around one percent of our gross
domestic product," Economy Minister Elena Salgado said after a cabinet
meeting. Under the new budget, the main rate of value- added tax will
rise from 16 percent to 18 percent and a lower rate from seven
percent to eight percent, starting July 1. The lowest rate of all
will remain at four percent. The government also intends to end a 400-
euro income tax allowance and hike the tax on capital investment
revenue, from 18 percent to 19 percent on the first 6 ,000 euros
and 21 percent thereafter. The government, which denies it risks
hindering an economic recovery that it expects to begin in 2010 ,
also cut public spending projects by 3.9 percent from 2009 to
185.24 billion euros. Socialist Prime Minister Jose Luis Rodriguez
Zapatero had made reducing taxes a key plank of his government since
taking office in 2004.