Spanish shoppers face a sharp increase in the cost of living after the government slapped a three per cent rise on VAT.
Madrid is desperate to raise cash to slash 65 billion euros off the public deficit by 2014 and save the country from a full blown bail out.
The move will further squeeze consumers and small businesses.
The price hike has infuriated shoppers in Madrid:
“It’s very bad, awful, awful. Prices will go up even more. They take it from our pockets. It hurts all of us. So it is very bad, very bad, awful.”
Spain is trapped as the government cuts spending to please investors tax revenues fall as joblessness increases.
So Madrid raises taxes, which in turn hits consumer spending fuelling further recession.
In an attempt to avoid the VAT rise people have been rushing to pick up big purchases before the hike came into effect on September 1.
Car sales went up in August as savvy shoppers bought early to avoid the extra cost.
Prime Minister Mariano Rajoy is due to hold meetings with German Chancellor Angela Merkel in Madrid on Thursday.