Spain’s government approved a crackdown on tax fraud as Prime Minister Mariano Rajoy redoubles efforts to reduce the deficit and convince investors that a surge in borrowing costs won’t force the nation into a bailout.
The Cabinet approved limits on using cash and rules to make taxpayers declare foreign bank accounts, Budget Minister Cristobal Montoro said after the weekly meeting in Madrid.
Rajoy is trying to regain investors’ confidence in Spain’s shrinking economy as the nation’s borrowing costs approach the levels that prompted Greece, Portugal and Ireland to seek European bailouts. The premier, in power since Dec. 21, said yesterday that the country won’t need a bailout and that it is “not possible to rescue Spain.”
The government is “taking measures every day” to increase the confidence of investors and European countries in Spain, Montoro told reporters today.
Spanish 10-year bond yields rose to 5.97 percent at 3:50 p.m. in Madrid from 5.82 percent yesterday, widening the gap between Spanish and German borrowing costs to 424 basis points. The yield has surged from 4.87 percent on March 1 and 5.07 percent the day before Rajoy took over from the former Socialist government.
Bonds fell today after Bank of Spain data showed Spanish banks’ borrowings from the European Central Bank surged almost 50 percent in March to 227.6 billion euros ($300 billion), the most on record. Spanish banks are tapping the emergency ECB loans and channeling some of them into purchases of sovereign debt, Treasury data show.
Cash transactions are limited to 2,500 euros between companies or between an individual and a company and to 15,000 euros for non-residents, Montoro said. Fines of 1,000 euros to 100,000 euros will be levied for failure to comply with tax inspections.
The tax measures are part of efforts to shrink the underground economy, which may equal 19 percent of gross domestic product, according to Friedrich Schneider, an economics professor at the University of Linz in Austria who has studied unregistered economic activity across Europe.
The program comes after a decree approved on March 30 allowing tax evaders to pay 10 percent of undeclared assets, a move designed to raise 2.5 billion euros. The government says that will help slash the budget deficit to 5.3 percent of GDP this year from last year’s 8.5 percent, even as the economy contracts and unemployment exceeds 23 percent.
As part of efforts to reduce spending and increase competitiveness, Education Minister Jose Ignacio Wert said a committee of experts has been asked to work on an overhaul of the university system.
Spain spends more on education than the average by countries in the Organization for Economic Cooperation and Development. The results aren’t satisfactory, considering none of its universities are ranked internationally and the level of dropouts is high, Wert said.
The committee will review the number of universities, which Wert said is very high compared with a U.S. state with a similar population such as California, as well as degree programs and the number of students per course, Wert said.