Throughout Europe economies are buckling under the weight of swollen budget deficits. 

Besides the costs of the financial stimulus measures introduced during the financial crisis, the economic downturn drastically reduced tax revenue, exacerbating the situation as did the lost tax on bank interest.  
Governments throughout Europe are therefore under pressure to cut spending and raise taxes to rein in their deficits.  The Spanish government has increased tax on savings income and will increase VAT later this year.  
While Eurozone members should keep their deficits to 3% of gross domestic product or less, this is proving an impossible task.  Spain’s deficit for 2009 was 11.4%, with 9.8% forecast for this year.  The government’s 2009-2013 Stability Programme aims to reduce the country’s deficit down to 3% by 2013.  The government has said that higher taxes and a drive against tax evasion will contribute to the reduction.
Aside from the economic downturn, there is another key issue facing governments, as outlined in a 2008 paper by the Centre for European Reform, which read:
“Europe stands on the cusp of a demographic revolution. Europe’s changing demographic profile poses political, economic and social challenges that are as important as climate change, security and globalisation.”
The post war ‘baby boomer’ generation is starting to retire.  The EU now has one of the lowest fertility rates in the world.  Octogenarians currently represent 4.4% of the EU population, increasing to 12.1% by 2060.  This will result in an increasing ‘dependency ratio’ - the number of retired people as a proportion of those working and paying income tax.  Spending on pensions, healthcare and long-term care is estimated to hit 27.5% of GDP by 2035.  
This is a not insignificant threat to the fiscal stability of EU countries.  Where will this funding come from, particularly at a time of high public sector debt?  In Spain the government has proposed increasing the official retirement age from 65 to 67 (to be phased in between 2013 and 2025.  Even if it goes ahead, it will not be enough.  The number of people aged over 64 is set to double over the next 40 years.   
To add to these issues, a surge in inflation as a result of the fiscal stimulus packages could also force governments to review their taxation policies.  Over recent decades policy-makers have mainly used Monetarist polices of interest rate increases to curb inflation, but the current fragile state of their economies means that interest rate increases would have to be used sparingly for fear of driving their economies back into recession.  Governments may have to resort to the earlier Keynesian practice of increasing taxes and cutting government spending to reduce money supply and cool inflation.  
Nonetheless, it is still often possible, particularly for higher earners and those with savings and investments, to reduce your tax liability to lower levels than you may expect.  So while higher taxation is a threat, with suitable approved arrangements in Spain you may still be able to reduce your tax bill.
Bear in mind that if you are a British expatriate you may return there one day or your money may return if inherited by UK residents.  The tax burden in the UK is likely to increase, but provided you take action while still non-UK resident you will be able to organise your wealth in a more tax efficient manner for your return, or on your wealth being passed to your heirs, than UK residents are able to achieve.
Seek advice from an experienced tax and wealth management adviser such as Blevins Franks to establish the best tax mitigation strategies for you.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevins-franks.com

by Bill Blevins, Financial Correspondent, Blevins Franks
Appears in: Fortnightly edition 396 Tenerife News