Madrid last month cut corporate and personal tax rates, simplified Spain's personal-income tax system and vowed to close loopholes

That's good news, and now there's more: The government projects the economy to expand in 2014. OK, so maybe 1.2% projected GDP growth isn't much, but consider that the Spanish economy contracted by 0.93% between 2009 and 2013, according to the World Bank.

So leave it to the austerity scolds at the International Monetary Fund to call for tax increases.

The Fund does praise some aspects of Madrid's reform program in its latest country report. Yet IMF staff also fret that Spain may not be relying enough on "revenue"—that is, taxation—to achieve fiscal consolidation. "Raising excise duties and environmental levies . . . would bring Spain's collection efforts more into line with its European peers," the report argued, as if those peers are role models.

cat
Spanish Minister of Finance Cristobal Montoro Zuma Press


Specifically, the Fund wants Spain to raise value-added taxes, alcohol and tobacco excise taxes, tourism taxes, and various environmental and energy levies: "It will be critical to protect the most vulnerable by increasing the support system for them via the transfer and tax system."

Rather than heed this bad advice, Prime Minister Mariano Rajoy and Finance Minister Cristobal Montoro are cutting government spending and eliminating wasteful programs to reduce pressure on the public fisc. Public spending amounted to 44.8% of GDP in 2013, which is still too high but down from 46.3% in 2010. The government projects it will fall to 40% by 2017

That's better progress than many of the European states currently lecturing Madrid can claim.

Madrid has also made clear that it believes private growth is the real answer to its fiscal woes. Mr. Montoro projects that revenues will rise and budget deficits fall through 2016. "In gross terms this reform means we are renouncing tax revenues," Mr. Montoro told the Financial Times earlier this week. "But in reality what we are doing is stimulating the economy."

In other words, economic growth spurred by low taxes and less state intervention yields more revenue over time. If Mr. Montoro can pursue the logic of that insight, there's hope for Spain's beleaguered economy