Spain looks to higher taxes to rein in deficit

Spain's government Saturday approved a draft budget providing for tax hikes worth nearly 11 billion euros to rein in the deficit as it struggles with recession and Europe's highest jobless rate.
"The sum of these measures will result in revenue of around 10.95 billion euros (16.07 billion dollars), or around one percent of our gross domestic product," Economy Minister Elena Salgado said after a cabinet meeting.
Under the new budget, the main rate of value-added tax will rise from 16 percent to 18 percent and a lower rate from seven percent to eight percent, starting July 1. The lowest rate of all will remain at four percent.
The government also intends to end a 400-euro income tax allowance and hike the tax on capital investment revenue, from 18 percent to 19 percent on the first 6,000 euros and 21 percent thereafter.
The government, which denies it risks hindering an economic recovery that it expects to begin in 2010, also cut public spending projects by 3.9 percent from 2009 to 185.24 billion euros.
Socialist Prime Minister Jose Luis Rodriguez Zapatero had made reducing taxes a key plank of his government since taking office in 2004.