Spain’s government has reduced the tax on the new home purchases by halves in order to motivate the injured property market.

The indebted construction companies and property developers appealed the government to take some steps to overcome the market hitch. The government has decided that the Value Added Tax will be reduced by 4% by the end of the year. The tax reduction on the new flats has been nearly 8%.

The cabinet meeting has also approved of raising an extra €5bn for the exchequer this year, so that the public sector deficit reduces to 6% GDP as it was intended 9.2% from last year.

The money will come through the corporation tax payments by big companies and also the cost of pharmaceuticals for the public health system will be reduced.

Public Works Minister José Blanco appreciated governments plan and sated that the purpose of the government to develop the strength and sustainability of the economy cannot be questioned.

Meanwhile, José Luis Rodríguez Zapatero, the Socialist Prime Minister has been convincing the sovereign bond markets that Spain will gather its deficit targets, although his government has been trying to stop the economy from dipping into recession.