SPAIN’S GOVERNMENT has presented an austere budget for 2013 and the timetable for structural reforms as the country seeks to slash its deficit and fend off the prospect of a sovereign bailout.
The focus of yesterday’s budget was on spending cuts rather than revenue increases. Government ministries face a cut of 8.9 per cent in expenditure and civil servants’ wages were frozen for the third year in a row.
Finance minister Cristóbal Montoro described the measures as part of “a huge effort to ensure economic growth and create jobs”.
“It’s a shared sacrifice, it’s a sacrifice for many Spaniards,” he said. “But this is the quickest way to get out of this crisis.”
A tax on lottery prizes will be created following increases to VAT and income tax.
Spain is attempting to reach a deficit target of 6.3 per cent of GDP this year, dropping to 4.5 per cent of GDP in 2013.
Next year’s budget forecasts a contraction of the economy of 0.5 per cent, a smaller drop than many analysts expect.
A high deficit, lack of growth and Europe’s highest unemployment rate, at 25 per cent, have made Spain the focus of market instability in recent months, with a banking crisis also contributing to its woes. The country’s difficulties were highlighted when deputy prime minister Soraya Sáenz de Santamaría said the government would take the unusual move of using €3.1 billion from the state pension reserve fund to cover treasury needs. The government also indicated it will attempt to push through 43 reforms over the next six months, in areas such as energy, telecommunications and the labour market.
The deputy prime minister said the programme was in line with Spain’s commitments to the EU, and many see the budget and reforms as paving the way for a possible sovereign bailout in the coming weeks, should the country’s borrowing costs remain high.
The bloc’s economic and monetary affairs commissioner Olli Rehn welcomed the measures. “The reforms are clearly targeted at some of the most pressing policy challenges,” he said.
The financing difficulties of many of Spain’s 17 regions have contributed to the crisis and yesterday Castilla-La Mancha became the fifth to confirm the need for an emergency loan from the state. That region’s request for €848 million follows similar moves by Catalonia, Valencia, Murcia and Andalusia, putting the regional financing fund under pressure.
A poll taken earlier this month by Metroscopia showed that 71 per cent of Spaniards do not have confidence in how the Partido Popular government of Mariano Rajoy is handling the economy. Recent weeks have been marked by an intensification of anti-austerity protests. A massive demonstration in Madrid on September 15th was followed by the “Occupy Congress” protest on Tuesday, in which thousands surrounded the parliament building in Madrid.
It ended with violent clashes between police and protesters.
Unions in the Basque region and Navarra staged a strike on Wednesday and last night public school teachers marched through Madrid to oppose education cuts.
Meanwhile, the central government faces increasing separatist fervour in Catalonia. The Catalan assembly approved a motion to hold a referendum on independence for the region during the next legislature, which will follow early elections to be held in November.
