The European Commission is set to give Spain an extra year until 2014 to meet an agreed EU public deficit target, a European Union official said today.
Under targets set by the EU executive, Spain was to cut its deficit to the EU limit of 3% of GDP in 2013.
But a delay of one year "is on the table and is expected to be approved tomorrow" by the EU's 27 finance ministers, the official said.
"Given the deterioation in the economic situation of Spain, we have decided to extend the deadline," said the official, who asked not to be named.
Spain in May revised its 2011 public deficit - the shortfall between government revenues and spending - saying that it stood at 8.9% of gross domestic product instead of 8.51% as reported earlier.
The same month, the EU warned that Spain would widely miss its public deficit targets this year and next while remaining in recession during 2013.
The conservative government of Prime Minister Mariano Rajoy has pledged to cut Spain's public deficit to 5.3% this year. But the European Commission, in a spring economic forecast, said Spain's deficit would reach 6.4% this year and 6.3% in 2013, more than twice the EU limit.
The euro zone has pledged up to €100 billion in help for Spain's distressed banks but is waiting on the results of audits on the lenders to put a figure on the rescue as EU officials for their part thrash out details of a complex plan to recapitalise the banking sector.
Spain moots VAT sales tax rise
Spain's conservative government said today it was being pushed towards a rise in VAT sales tax, which would be a U-turn on its pre-election promises.
Budget Minister Cristobal Montoro said the underground economy was largely to blame for an expected increase in value-added tax, which has been requested by the European Union.
"If VAT was paid by more of those who are supposed to pay, it would not have to be raised by so much," Montoro told a conference at Madrid's Complutense University.
"This debate of whether or not to raise VAT would not exist so much if the the submerged economy really did not exist," the minister said. He criticised businesses that offer customers the option of evading VAT on purchases, describing it as a "national sport".
The International Monetary Fund warned in a report on June 15 that Spanish government revenue may fall short of expectations, and it urged the government to raise VAT immediately.
Prime Minister Mariano Rajoy said in January he had no plans to raise VAT because a general rise in prices would affect everyone, and he did not believe it would be fair. But he may be forced to comply in an effort to meet deficit-cutting commitments.
The goverment may eliminate some VAT reductions that allow an array of goods and services to escape the full 18% tax rate, according to a report last month in El Pais newspaper. Some products such as foodstuffs incur a reduced VAT rate of 8% and others such as bread and milk just 4%.
The International Monetary Fund warned in a report on June 15 that Spanish government revenue may fall short of expectations, and it urged the government to raise VAT immediately.
