25 Jun 2014
Spanish GDP boost of 0.55% from tax cuts a bit optimistic - ING
FXStreet (Łódź) - Martin Van Vilet from ING comments on the wide-ranging tax reform plan introduced by the Spanish government last week, saying that it might have a positive impact on activity but that the assumed GDP increase of 0.55% over two years is a bit too optimistic.
Key quotes
"The government believes that the income and corporate tax cuts – which will be partly offset by phasing out deductions and exemptions – will boost GDP by up to 0.55% over two years."
" As a result, and taking into account the planned broadening of the tax base, Spain would still be able to meet the existing budget deficit targets set by the European Commission, according to Cristóbal Montoro, budget minister."
" As the income tax reforms will especially benefit workers with an income below 20K euro, we tend to agree that the impact on activity may be positive."
"But the assumed GDP boost of 0.55% seems a bit optimistic in our view, given that any positive supply side effects may not materialize until the longer term."
"Assuming that the ex-ante budgetary impact of the reform will only be slightly negative, we tend to agree that the nominal budget deficit target for 2015 (4.2% of GDP) could still be met."
"But if Spain wants to fully comply with the European Commission’s recommendation under the Excessive Deficit Procedure, which also takes into account the changes in the structural budget balance, additional fiscal consolidation efforts are likely to be needed."
Key quotes
"The government believes that the income and corporate tax cuts – which will be partly offset by phasing out deductions and exemptions – will boost GDP by up to 0.55% over two years."
" As a result, and taking into account the planned broadening of the tax base, Spain would still be able to meet the existing budget deficit targets set by the European Commission, according to Cristóbal Montoro, budget minister."
" As the income tax reforms will especially benefit workers with an income below 20K euro, we tend to agree that the impact on activity may be positive."
"But the assumed GDP boost of 0.55% seems a bit optimistic in our view, given that any positive supply side effects may not materialize until the longer term."
"Assuming that the ex-ante budgetary impact of the reform will only be slightly negative, we tend to agree that the nominal budget deficit target for 2015 (4.2% of GDP) could still be met."
"But if Spain wants to fully comply with the European Commission’s recommendation under the Excessive Deficit Procedure, which also takes into account the changes in the structural budget balance, additional fiscal consolidation efforts are likely to be needed."