In a step aimed at easing mounting pressure on the Spanish housing market, the government on Friday announced steps to halve tax to 4% on new homes, a move that’s expected to boost the country’s construction market. The property market crash had pushed the once vibrant economy of the EU into recession in the end of 2008.
The move will also create more jobs as infrastructure activities build up, thus cutting one of the highest unemployment rate in the European Union.
Two other important decisions were announced after Friday’s meeting. Firstly, bigger companies will pay advance tax installment that is expected to bring in an additional €2.5 billion, and secondly, state health officials will buy cheaper generic drugs that can save an additional €2.4 billion.
Elena Salgado, the Spanish finance minister said the new measures will be effective immediately by decree, though it needs to be ratified by parliament. The government has convened a special meeting of the parliament next week to ratify the decree formally, said government spokesman Jose Blanco.
Ms Salgado said a second cabinet meeting is scheduled on 26 August to discuss the country’s high unemployment rate of 20.89 per cent. “We are going to carry on taking measures to stimulate and favour growth, which will strengthen those we already have in place, in the labour market,” she said.
Madrid is fighting the economic slowdown on both the domestic and international fronts, explained spokesperson Blanco.
“Externally, the path is more Europe, not less. Better coordination and better economic governance. And internally, the government re-affirms the reforms in the measures approved by the government today,” he said.
The budgetary deficit of Madrid shot to 9.2 per cent of the country’s Gross Domestic Product, much higher than EU’s consensus limit of 3 per cent.
The high deficit-GDP ratio had pushed Spain’s borrowing costs from the market, raising questions about its ability to repay debts. The European Central Bank stepped in by buying hard-hit Spanish bonds and prevented a possible EU crisis after Madrid promised to cut deficits progressively. It plans to reduce deficit to 6 per cent this year, 4 per cent in 2012 and 3 per cent in 2013.