February 19, 2008 at 2:03 pm #53670
I was talking to a bank manager this morning, he is suicidal and he claims many of his collegues are feeling the same. He suspects there will be massive job losses in most banks, staff reductions and many branch closures.
I asked if he thought the government would temporarily drop the PPT and IVA from 7% to say 2.5% to encourage those who are waiting to purchase now. I hadn´t considered it before talking to him and began to wonder if such a move, even if for a short period, like an amnesty, would ever be discussed by the government during times of difficulty in the construction industry.
There could be many reasons why it can´t or should not be done, but, it would no doubt be an attractive proposition to many.
I would be interested to hear the forums comments.
February 19, 2008 at 2:20 pm #78898
PPT is way too high in Spain imho, and it needs to be reduced
February 19, 2008 at 3:07 pm #78900
Just a little further thought on this.
To stop speculators and investors getting the benefit, the 2.5% offer could be on 1st or primary homes only, and must be owned for a minimum of 4 years or the vendor pays the government 4.5% difference at the point of sale.
This would greatly benefit the Spanish first time buyers market and help many young Spanish people on to the property ladder.
I´d be interested to hear your opinion Mark.
February 19, 2008 at 4:55 pm #78910
Spain does have a budget surplus of 2% of GDP, so increased public spending and tax cuts is very likely after next month’s elections.
Spain’s major problem, as we all know, is the result of the economic boom of the past ten years, debt-financed construction.
There is an over-supply of housing, households are over-indebted and the construction industry continues to churn out properties. There is also the prospect of major housing repos and foreclosures that has to be addressed.
Refueling the construction industry by lowering PPT (esp new build) at the moment would not be wise IMO, besides which it is not enough to achieve the desired effect.
As ever, household spending is going to be the springboard to recovery, so by easing the burden on household budgets by reducing, say, income tax, should provide the fiscal help necessary to help people service existing debts, and hopefully leave something over for spending.
With no control over interest rates or exchange rates, Spain has to be very careful how it alleviates the pain with its fiscal policies.
I can see Spain joining Italy with a euro-exit in the next few years.
February 19, 2008 at 5:31 pm #78913
Iano, I´m not so sure that income tax cuts will be possible if hundreds of thousands of construction workers begin claiming unemployment benefits. There are many other industries that are associated with construction so the total claiming benefits could reach high figures.
Regarding houshold spending, this has increased over the past 10 years to a point where as you say many Spanish families are in finacial crisis. I can´t see any government encouraging them to spend more.
The way I see it, the so called credit crunch will slow down the spending habits of most families in spain. GDP will plumet to a deficit as forecast.
Tourism is down and will continue I´m sure for 2008. Spain relies heavily on both construction and tourism, the government can´t control the latter, but by reducing PPT and IVA, they could at least have some impact on jobs in construction.
It will be interesting to see if a possible change of government comes about in March, whether a small amount of optimism lifts the economy in general. Though in all honesty, it could only be a drop in the ocean.
February 19, 2008 at 7:59 pm #78917
Some would argue the economy’s over-reliance on construction needs sorting anyway, it was never going to continue at the rate it was going.
The chronic housing over-hang bears that out, so jobs being lost in the construction sector is inevitable unfortunately.
The credit crunch, and tightening of controls, means borrowing is going to become more difficult for everyone.
Because Spain is unable to set its own interest rate, in effect the cost of borrowing, it has to find ways
that enable over-stretched people to fund existing borrowing.
If it doesn’t do that, defaults and foreclosures cause a spiral descent of prices, as lenders attempt to offload stock in an already heavily over-supplied marketplace.
Lets not forget there is going to be less potential demand, foreign or domestic, as individuals have similar obstacles accessing debt finance, driving prices even lower.
Also worth bearing in mind Spanish banks currently have huge amounts of securitised mortgage-backed bonds being used as collateral with the ECB for short-term borrowing. This collateral will have to go to the Capital Markets, whenever they open again, for longer term borrowing, so it makes sense that the underlying asset (house equity) is worth something when it does.
The goverment can’t avoid the slide, but it can help put the brakes on.
My thinking is that by introducing tax breaks (not necessarily income tax which I used as an example), will help enable people to keep a roof over their head, and prevent massive amounts of defaults.
We can only assume that will be the priority of people when deciding how to spend their pennies.
With creeping inflation any small surplus will go to pay for goods/services, and the circulation of money is good for the economy as a whole, keeping people in jobs, staving off recession.
Oh for an easy answer eh? 😀
February 19, 2008 at 9:25 pm #78919
My hearts bleed for the likes of the Bank managers. They weren’t suicidal when they were ripping bank customers.
The problem is the whole system. I do not wish to re iterate. Economic cycle comes & goes. Lack of trust & faith is Spain’s main problem. It has little to do with Taxation, ECB, etc.
February 20, 2008 at 11:14 am #78925
Many thanks to those who have voted so far. It looks like a reduction in purchase taxes would be very popular.
I don´t expect it to be incorporated into any manifesto prior to the election though. Pity!
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