Tax hike piles misery on Spain's shoppers and small firms

Sat Sep 1, 2012 12:18pm EDT
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By Silvio Castellanos and Marine Hass

MADRID (Reuters) - Cash-strapped Spanish shoppers and small businesses were resigned to more pain on Saturday, as everyday living costs like heating, phone bills, clothes and haircuts all become more expensive following a hike in value-added tax (VAT).

Spain's center-right government has raised its main VAT rate by three percentage points to 21 percent as part of a drive to slash 65 billion euros ($82 billion) from the public deficit by 2014 and save the country from a full international bailout.

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," said Carlos Asis Alema 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 a year.

Some larger companies such as Inditex (ITX.MC: Quote), 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.   Continued...