Black Wednesday: The Spanish VAT increase

I realise that it is an unlikely scenario, but were Mariano Rajoy to come to your front door brandishing an invoice, what would you say to him? And be careful, because if you insult him, you might find that he scurries off and does you for impugning his honour, in the style of the Balearics El Presidente Bauzá ("inútil", "fascista", etc, in the words of union boss and serial insulter Lorenzo Bravo).

For a kick off, you would probably say that the IVA (VAT) he's charging you is going to have to be 18%. "You can date the invoice for before the increase comes in, Mariano (Sunday or Monday). That way, you can make it 18% and not 21%." "Yes, but there's the European Union and the IMF to satisfy. It's got to be later and at 21%." "Sorry, Mariano, either you make it 18% or you can bugger off."

There will be an awful lot of Marianos who discover that whatever invoices they should be raising for this quarter are suddenly being dated in the first week or so of July. Which assumes, of course, that IVA is even being applied; a big assumption. And the assumption will be even greater once the increase comes in. Three more points of IVA to pay. You've got to be joking. 

But more fundamentally, the invoice that Mariano comes to the door with would not need IVA being applied. Not because it's being done black, whatever it is, but because there wouldn't be anything in the column for the base amount. You can't charge IVA, be it 18 or 21%, on zero. And zero, which is being generous, is about all that Rajoy's efforts since coming into office are worth.

Poor old Rajoy, you wouldn't wish his problems on your worst enemy, though worst enemy is precisely what Rajoy has become for many people. To the reprehensible and economically dubious use of taxation that isn't progressive, a move designed to lose him even more of his rapidly dwindling number of friends, he has the miners protesting in Madrid, the public workers unions threatening strikes as early as this month and all the other unions looking forward to yet another general strike.

To make things really ducky for Rajoy, he has the Europeans telling him that the Bank of Spain should be granted far more powers. There would be one bright note if this were to happen. He could get rid of at least one of the various of his ministers who seem to all do the same financial/economic/make-numbers-up tasks. As he's getting rid of other bodies in the public service, he may as well shed a minister or several. No one would notice, much as they wouldn't notice if Rajoy were to suddenly disappear in a puff of smoke left behind by the economics of slash and burn.

On top of all this little lot, Rajoy has to contend with the fury of the tourism sector. Let's just remind ourselves, shall we. Which political party, before the last national election, promised to cut the tourist rate of IVA? It wasn't PSOE, so it must have been ... . So it was. It was the Partido Popular and a prime minister who also made a pledge to tackle unemployment. And what better way to do this than hit consumers harder, meaning less of the disposable and therefore less spend, less business and fewer jobs. Or what better way than to load a greater tax burden on the so-called motor of the economy, the tourism sector, thus meaning higher prices, less spend, less business and fewer jobs. (I may question the morality of there being a reduced rate for the tourism sector when mostly everyone else is being slammed with 21%, but in the absence of any other signs of life in the economy, it is just about justifiable.) What better way than to increase IVA in a nation where the minimum salary is half of that in France, so meaning less spend, less business and fewer jobs.

Poor old Rajoy. His apologists will argue that he was sold a complete pup when he became prime minister. It is no argument. He wanted the job, but he should have come clean and said that there was precious little that he could actually do. Except bowing to the demands of the EU.

Originally, it was said the IVA increase would happen tomorrow, Friday the thirteenth. But don't worry about walking under ladders or black cats crossing your paths, because the 21% ton weight is going to fall from the ladder onto you anyway and the cat's about to piss on you. What an absolute bloody mess.


Any comments to andrew@thealcudiaguide.com please.