SPAIN will propose tax cuts for workers and companies as part of a fiscal reform aimed at boosting the nascent economic recovery, according to a source close to the Treasury Ministry.

    The expected bill is Prime Minister Mariano Rajoy’s main structural reform this year and will include reducing tax breaks to widen a tax base that generates one of the lowest revenue takes in Europe.

    By cutting taxes at the same time, Rajoy is betting that will help boost cash-strapped consumers’ finances and that economic growth will boost tax revenues, but the plan has been roundly criticized by unions and economists.

    The government will propose cutting the lower and upper levels of income tax, while also reducing corporate rates for large companies to 25 percent from 30 percent over the next two years, the source said.

    “The reform will be implemented in two tranches depending on how the economic recovery evolves over the next few years,” the source said.

    Unions say tax cuts are merely a populist measure ahead of elections next year, while some economists say economic growth is not yet strong enough to justify tax cuts and the move risks hurting the government’s ability to meet its budget deficit targets.

    Spain has been in and out of recession since a 2008 property crash which has left one in four workers unemployed and has put thousands of companies out of business.

    Over the last three years, the government has passed a slew of unpopular tax hikes and deep spending cuts to bring down the public shortfall and convince nervous financial markets it can control its finances.

    Rather than directly increase the country’s tax revenue, which fell to 36.4 percent of economic output in 2012, the latest reform aims to widen the tax base by reducing available tax breaks and make the most of the economic turnaround, the government has said.

    (SD-Agencies)