Spain opposition plans to tax cut 5pc

MADRID: Spain's opposition leader Mariano Rajoy, widely tipped to win elections in November, will look to pass a budget in the first quarter of 2012 that will include a 5 percent tax cut on small and medium-sized businesses, which form the backbone of the economy.

Rajoy will aim to introduce an economic 'shock plan' in the first months of 2012 if he wins a general election to show Spain will not be the next euro zone country to call for a bailout. Elections were brought forward by Prime Minister Jose Luis Rodriguez Zapatero's government last week to Nov. 20, from spring 2012.

Primary details of the plan were revealed by senior advisers and members of Rajoy's Popular Party to Reuters in mid-July.

The plan will include three main measures, according to an interview Rajoy gave to agency Europa Press. They include a 5 percent reduction in taxes to small and medium-sized companies.

They would also consist of a spending ceiling for Spain's 17 autonomous regions, and a business plan to stimulate demand partly through a reduction in bureaucracy.

Rajoy also said that Spain's main objective would remain to meet its deficit targets agreed with Europe. While a budget would not be passed by the normal end of year deadline so soon after elections, he said it would be passed as quickly as possible thereafter.

Spain's economy continues to struggle, and grew just 0.2 percent on a quarterly basis in the April-June period. That has fuelled doubts Madrid will be able to hit tough deficit goals and pushed up Spanish government bond yields as markets fear Spain might eventually have to follow other euro zone members Greece, Ireland and Portugal and seek a bailout.

Rajoy also said in the interview that he would not look to raise taxes to meet the deficit goals. Spain aims to cut its public deficit to 6 percent of gross domestic product this year from 9.2 percent in 2010.

Rajoy's party leads the incumbent Socialist party by around 14 percentage points in polls.

Copyright Reuters, 2011