Spanish finance chief pledges no new tax increases

In a show of increasing assertiveness toward European Union institutions, Finance Minister Crist¨®bal Montoro on Friday pledged that there would be no more tax hikes as proposed by Brussels in order to meet the country's deficit reduction targets.

In a report on Spain issued last month, the European Commission suggested the government shift items subject to the reduced value-added tax of 10 percent to the standard rate of 21 percent. It also proposed that the administration of Prime Minister Mariano Rajoy impose special levies on the energy sector.

¡°There will be no new tax hikes,¡± Montoro said after the regular Friday Cabinet meeting. ¡°I can¡¯t be any clearer than that.¡± The minister also said there would be also be no repetition ¡°either partially or fully¡± of the suppression of the Christmas monthly bonus payment to public sector workers included in the 2012 budget.

Separately, Economy Minister Luis de Guindos on Friday carried on the government¡¯s campaign for the European Central Bank (ECB) to be allowed to do more to stimulate economic growth. Reiterating comments earlier this week, De Guindos said the ECB¡¯s monetary policy transmission mechanism was ¡°broken¡± as witnessed by the fact that ¡°very solvent Spanish companies¡± are paying higher interest rates than their peers in other parts of Europe.

There will be no new tax hikes. I can¡¯t be any clearer than that¡±

¡°Logically what is happening is that the monetary policy transmission mechanism is broken and that requires measures, which, I believe, the party most interested in introducing is the ECB itself,¡± De Guindos said in Dublin where he was attending a meeting of EU economy and finance ministers.

At the start of this week, Rajoy went further by calling for the ECB to be allowed, as is the case with the US Federal Reserve, to stimulate growth by directly flooding the economy with liquidity.

In another report released earlier this week, the Commission urged Spain to step up the pace of its reform drive. The Rajoy administration has pledged to unveil a further battery of reforms on April 26 when it is due to present the Commission its new deficit-reduction productions. The measures could include the extension of tax hikes previously introduced and adjustments to the state pension system.

On the basis of that plan, Brussels will decide whether to give Spain more time to bring its deficit back within the EU ceiling of 3 percent of GDP, which it is currently committed to doing next year.

The government on Friday announced other measures aimed at bolstering reforms, including the setting up of an independent body to ensure compliance with the Budget Stability Law as required by the Commission as part of the conditions for the bailout of some 40 billion euros to recapitalize Spain¡¯s banking sector. The draft bill approved by the Cabinet on Friday calls for the so-called Independent Fiscal Responsibility Authority to monitor the finances of all levels of the public administration.

Montoro said the new body, which is to operate under the auspices of the Finance Ministry, will have a similar institutional framework to that of the National Statistics Institute (INE) to ensure its independence. The chairman of the new body will be appointed for three years, with his mandate extendable for another three. His appointment will be subject to the approval of parliament and his mandate will not end should a new administration be formed during his term of office.

The government on Friday also took steps toward further reform of the pension system by appointing a panel of 12 independent experts to draw up a report suggesting how to ensure the ¡°sustainability¡± of the system. The committee will be chaired by sociology professor Victor P¨¦rez-D¨ªaz.