Spain outlines steps to cut debt

The Spanish government raised its forecasts for its fiscal deficit for the next three years today as it struggles to convince…

The Spanish government raised its forecasts for its fiscal deficit for the next three years today as it struggles to convince markets it can cut spending enough to meet European targets.

Spain, which announced a €50 billion austerity programme last week in a bid to show it is in no danger of going the way of Greece, now expects a fiscal deficit of 9.8 per cent of gross domestic product in 2010, 7.5 per cent in 2011 and 5.3 per cent in 2012, the Economy Ministry said.

The figures, included in a document sent to the European Commission, compared to forecasts made last September for deficits roughly two percentage points lower in each year.

However, they are based on already published forecasts for the Spanish economy to grow by 1.8 per cent in 2011 and by around 3 per cent in the following two years. Economists doubt these can be met.

The government puzzled analysts last week by giving deficit data for 2009 and reiterating a forecast that it would meet a European Union target of reducing its deficit to 3 per cent of GDP by 2013 but failing to provide complete forecasts for the intervening years.

The government said it would aim to cut budget spending by 0.5 per cent this year through several cuts, noticeably to infrastructure spending and a contingency fund used to finance projects that where resources run out.

The government has also said it would reduce spending on public sector wages by 4 per cent of GDP by freezing hiring as a large number of workers near retirement in the next three years.

Spain said its ratio of public debt to GDP should peak at 74.3 per cent of GDP in 2012, well below Greek levels.

The document sent to the European Commission also proposed changing the pension system so that workers would have to contribute to a pension scheme for 25 rather than 15 years.

That would save four percentage points of GDP by 2030 the government said. A proposed increase in the working age to 67 from 65 years, which has been widely rejected by powerful labour unions, would also help.

Change is necessary if the government is to meet pension obligations that will rise due to an ageing population. It forecast pension contributions to rise to nearly 11 per cent by 2030, and 15 per cent by 2060. For 2010 contributions were seen totalling almost 9 per cent.

Other measures to increase competitiveness in the Spanish economy were also outlined in the report. These included a cut in the cost and time needed to set up a business in Spain, and plan to increase R&D spending to 3 per cent of GDP by 2020.

Education and training measure would also be put in place to ensure Spanish youth had better work opportunities.

Reuters