The Government has approved a record €27.3 billion package of austerity measures including freezing public sector workers’ salaries and reducing departmental budgets by 16.9%. The government says it will raise 12.3bn euros this year, aided by an increase in tax for large companies.
The Government aim is to reduce spending and also carry out structural reforms to cause the economy to grow and create jobs. The cuts and deficit targets are less than originally demanded by the EU and economists are questioning whether the cuts will be enough to satisfy Spain’s European partners.
The measures outlined so far include:
Ministry budgets cut by up to 50%
Civil servants’ wages frozen
Electricity bills up 7% and gas up 5%
Unemployment benefit frozen
Corporation tax revenue to rise by reducing the deductions companies can make
Amnesty on tax evasion in return for a 10% fee
However, there are currently no plans for an increase in IVA (VAT) and pensions are set to rise in line with inflation.
Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain’s deficit from 8.5% to 5.3% of GDP in 2012, although many believe that this figure cannot be achieved under the current plan and even more cuts will be necessary
Spain is in recession and the economy is widely expected to shrink by 1.7% during 2012.