4 Dec 2010

Tobacco tax raised by Spain

1:06 pm on 4 December 2010

Spain has raised the rate of tax on tobacco as it seeks to tackle its high budget deficit.

The tax on tobacco will rise 28%. It is part of a package of measures to increase income and cut costs, and calm market fears over government finances.

Madrid has also announced plans to sell 30% of the national lottery and a minority stake in the AENA airport authority.

The government expects to raise an extra 780 million euros ($US1.04 billion) per year through the tax rise.

Spain's budget deficit hit 11.1% of GDP last year, and the government has pledged to cut it to 6% in 2011

Meanwhile the cost of financing has risen to record highs in recent days on worries that, like Greece and the Irish Republic, it could need an EU bail-out.

Prime Minister Jose Luis Rodriguez Zapatero cancelled a trip to a summit in Argentina to be present for a cabinet meeting on Friday, where the "anti-crisis" measures were approved by decree.

The BBC reports the reforms are a rapid response to a record rise in government borrowing costs. They were first mentioned on Wednesday in a reply to a question in parliament.

In addition, the government will discontinue payment of a monthly subsidy of 426 euros for the long-term unemployed.

The extra funding was introduced last year when the recession showed no sign of easing, for those whose other benefits had already run out.

The collapse of the construction market has left more than 4.7 million people in Spain without work.

At 20%, the Spanish unemployment rate is the highest in the European Union.

Production down

Industrial production fell for the second consecutive month in October.

Official data issued on Friday showed the drop was due largely to a reduction in the output of consumer durable goods.

the National Statistics Institute said output declined 1.9% from the same month last year, after falling 1.6% in September.