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economy

Government unveils four-billion-euro fiscal adjustment plan for 2015

Rajoy administration has not confirmed whether personal income tax hike will remain in place

The government on Thursday unveiled its latest fiscal adjustment plans, which entail finding 4 billion euros worth of measures for 2015 to meet its target of reducing the budget deficit to 4.2 percent of GDP from a projected 5.8 percent next year.

The deficit target for this year is 6.5 percent, with the government aiming to bring the shortfall back within the European Union ceiling of 3 percent of GDP in 2016.

While not specifically saying so, the updated financial stability plan the government has sent to the European Commission suggests that the temporary hike in personal income tax (IRPF) introduced in 2012 could remain in place beyond 2014. While the conservative Popular Party administration of Prime Minister Mariano Rajoy points out the negative impact of other fiscal measures, such as tax benefits for creating new companies, it omits referring to the effect of returning IRPF rates to the level of 2011.

The document sent to Brussels states that the government is “still working on” concrete measures to achieve the indicated savings. “The details of the measures that are expected to be taken in the following years, particularly 2014, are being finalized and analyzed,” the plan says.

In general terms, the fiscal adjustment measures for 2014 amount to 4.068 billion euros. Of the total, 2.142 billion euros will come from increased revenues, a figure the government says is consistent with the trend of the past two years and the leeway afforded the regions in levying taxes.

Savings in spending for next year are projected at 1.927 billion euros. These will come largely from greater control of current spending on goods and services through a centralized purchasing system and other measures.

Separately, the government said that its reform of the state pension system will generate savings of 1.2 billion euros in 2014 and 1.5 billion in 2016.

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