Friday, 19 October 2012

Pain in Spain

In recent weeks there have been big demonstrations in Spain over the country's need to balance its books  and - like many others in Europe - start living within its means.

The problems in Spain are not as great, arguably, as in Greece - but nonetheless the country is still in need of a financial rescue package from the European Union - otherwise the lights will go off apparently.

Now the reasons for Spain's economic woes are much the same as the UK's - too much money being spent on useless unproductive things, banks that were allowed to get out of control - and a huge explosion of debt (public and private) driven by a boom in the Spanish housing market.

One of the measures that the new Spanish Government has taken to restore sanity to the country's spending plans is to abolish tax relief on mortgage interest - which helped to fuel the mad boom in the housing market.

Because people were being heavily subsidised with public money - and given huge financial incentives to build ever more properties.

But is this a 'cut' which justifies people demonstrating on the streets?

Or is it a sensible move which prevents public money being spent on a subsidy to the private house buyers - where people might end up owning two or three properties - or many more even if they entered the highly lucrative 'buy to let' housing market?

I suppose it depends whether you were in receipt of this money - in which case you will probably wail and gnash your teeth.

But of course if you rent a property - instead of owning a house - then you won't be affected at all.

In which case you might even celebrate and throw your hat in the air - at the ending of this unfair advantage and peculiar use of public funds.

Interestingly, the USA still operates a system of tax relief on mortgage interest - which is where the economic collapse started allegedly through the 'contagion' of sub-prime mortgages - and over-extended banks.

But the UK ended tax relief on mortgage interest over 20 years ago - during the time Margaret Thatcher was Prime Minister. 

Now how strange is that - looking back?