As part of Spain’s strict austerity measures, shoppers will now face a sharp increase in taxes on goods and services.
Spain’s centre-right government on Saturday raised its main value-added tax (VAT) rate by three percentage points to 21 per cent as part of a drive to slash 65 billion euros ($82bn) from the public deficit by 2014 and save the country from a full international bailout.
But most Spaniards are not happy about the tax increase.
Cash-strapped Spanish shoppers and small businesses were resigned to more pain, as everyday living costs like heating, phone bills, clothes and haircuts all become more expensive following a hike in VAT.
But shop owners like Juan Perez told Al Jazeera that they will not pass the higher cost on to their consumers.
Instead he says the government should change the tax system.
“They need to distribute the efforts fairly so that it’s not always the same who end up paying. They need to spread the efforts more so that everyone take part, from top to bottom.”
‘Accept what comes’
But many in the country, which has already tapped international help for its banks and where one in four is out of
work, fear the move will only deepen a second recession in three years.
“I’ve got children, my wife is sick and can’t work, so this VAT hike is going to affect us a lot. But then, what can you do? The government takes these measures and we just have to accept what comes,” Carlos Asis Alema told the Reuters news agency as he shopped for food at the Mercado de las Ventas, a large market with stalls in Madrid.
Asis Alema said his income as a house painter was small enough that the tax rise would have a big impact on his family.
The Organisation for Consumers and Users, or OCU, estimates the tax hike will increase the average family’s spending by 470 euros per year.
Some larger companies such as Inditex, which owns the Zara clothes chain, and leading supermarket chain Mercadona
said they would not pass the higher cost on to their customers.
That had smaller businesses concerned they will suffer since they cannot squeeze margins the way the big firms can and retail sales have fallen every month for more than two years.
Mirardo Moya Cota, employee at a dry cleaner and clothes mender in the Mercado de las Ventas, said the business where he works has had to raise prices.
While the prices don’t look too much higher on individual items, it adds up bit by bit, he said.
“It’s horrible, it hurts all of us, especially those of us who are less well off,” said a woman shopping at a butcher stand, who declined to give her name. The tax on meat rose to 10 percent from 8 percent.
Defaults on consumer and mortgage loans have soared in Spain, and evictions from homes have also jumped.
Companies and the public sector have cut wages. The government does not expect an economic recovery to start until next year and job creation may still be several years off.