MADRID - The Organization for Economic Co-operation and Development (OECD) encouraged the Spanish government on Thursday to rise sales tax more in order to increase state revenue.

The organization stated it is better increasing state revenue than cutting public expenditure and in the biennial report on the Spanish economy, the OECD recommends applying the standard Value Added Tax (VAT), 21 percent, to more products.

Organisation for Economic Co-operation and Development (OECD) Secretary General Jose Angel Gurria (L) and Spanish Economy Minister Luis de Guindos pose for the media before their joint news conference in Madrid Nov 29, 2012. [Photo/Agencies]

The OECD also pointed out the Spanish government should implement an environmental tax on fuel, reduce deductions for contributions to pension plans and keep property taxes so that the country can increase its revenue.

Regarding the labor market, the OECD recommends reducing the current severance payments for unfair dismissal, 33 days per year worked, and establishing severance payments progressively according to years worked.

OECD Secretary General Angel Gurria said on Thursday these measures "have nothing to do with restricting workers' rights," adding "they are aimed to creating employment."

The OECD agrees on the Spanish government priority of fighting against fiscal deficit and encourages the central administration to control regional fiscal policies.

This report is published two days after the OECD predicted Spain would not meet its deficit target in the short term. According to the organization, Spain would experience a deficit of 8.1 percent in 2012, 6.3 percent in 2013 and 5.9 percent in 2014.

Moreover the organization said the unemployment rate would peak at 26.9 percent in 2013 and provided growth projections: Spain's GDP would experience a 1.3 percent contraction in 2012 and 1.4 in 2013 to start growing by 0.5 percent in 2014.