No IVA increase planned says Rajoy

Following his first address last week Spain’s new Prime Minister Mariano Rajoy has announced further measures aimed at breathing some life in to the countries crippled economy.

One such measure is the extension of the reduction of IVA (Impuesto sobre valor añadido – equivalent to VAT) on new properties.

Towards the end of his term socialist PM Jose Zapatero reduced IVA on new property purchases from 8% to 4% in an attempt to revitalise the market and to clear some of the thousands of new yet vacant properties that line the coast. The measure was however intended to be temporary and the rate was due to revert back to 8% at the end of 2011.

Rajoy has now announced that the rate will remain at 4% until at least the end of 2012 as it has not yet had time to make any  significant difference to the market and it would therefore be “logical” to extend the reduction.

Mr Rajoy also stated that he was not considering the creation of a “bad bank” to ringfence toxic real-estate assets which the banks acquired before the property bubble burst in 2007, but would instead be considering a restructuring process aimed at cleaning up the banks, improving transparency, and mergers.

Speaking to the Financial Times last week Economy Minister Luis de Guindos said that he expected banks to set aside extra funds of up to 50 billion euros to provide protection against potential losses from real estate assets.