Spanish local governments struggling with bust

On Friday, the Spanish newspaper ABC reported that Spanish municipalities are being hit hard due to the tax revenue shortfalls emanating from the effects of the Spanish property market crash. The two local governments most affected have been Madrid and Catalonia.

“The two municipalities that earned the most from [property-related] taxes, Madrid and Catalonia, in the past year have already registered a drastic decline in income. In effect, the Catalan community saw how their income from the Tax om property sales was reduced 27% in 2007 to 1,517 million Euros, 561 million less than the previous year. Additionally, tax collection from related legal transactions fell 5% to 1,682 million Euros, 5% less than in 2006. Therefore, between both taxes, the Generalitat Catalana (Catalan Government) last year failed to take in more than 655 million Euros.

The deceleration in Madrid was somewhat less, although the decline was also abrupt. According to provided by the community’s Property Council, the collection of tax on property transactions fell 19.1% in 2007 to 1.692 billion Euros, representing a cut of 374 million Euros. Cuts in notary tax revenue has been minimal, but this area is also down. Specifically, the fall has been 1% to 1.403 billion Euros. Therefore, between both taxes, the local government of Madrid last year lost 414 million Euros in comparison to 2006.”
–ABC, 16 May 2008 (my translation)

The article saw similar slowdowns across the board: in Valencia, Andalucia, Castilla and Leon, Castilla-La Mancha, and Extremadura. These tax receipt shortfalls will have a dramatic impact on the services local governments in Spain can provide as recession takes hold. It is a caution that the US, Ireland, and the UK should also keep in mind as this housing bubble’s effects are felt globally.

Sources
La crisis inmobiliaria recorta de forma drástica los ingresos autonómicos, ABC, 16 May 2008

See also: Other posts under the label ‘Spain.’