SPAIN’S NEW government has said the country’s budget deficit was higher than previously thought as it announced a new package of spending cuts and tax increases designed to conform to the euro zone’s austerity pact and fend off attack by financial markets.
Deputy prime minister Soraya Saenz de Santamaria said the measures were necessary because the public deficit was running at 8 per cent, not the 6 per cent they were led to believe by the outgoing administration, a difference of about €20 billion.
The principal measure comes in the form of an €8.9 billion budget cut spread across all government departments. There are also tax increases and for homeowners, a one-year freeze on public sector salaries, a freeze on the minimum wage of €641.40 a month and cuts in subsidies to trade unions and political parties. Pensions, as promised, will rise by 1 per cent next month, and the cut-off point for unemployment benefit is to be extended for a further six months.
Financial and employment law changes are being held back until later in January and it is rumoured that prime minister Mariano Rajoy’s government may delay the really unpopular measures until the end of March, after the regional elections in Andalusia which his Partido Popular hopes to win for the first time in its history. The full budget, designed to meet Mr Rajoy’s target of €16.5 billion in cuts, will not be presented to parliament until March 31st.
As well as freezing public sector wages, civil servants will find their working week extended from 35 to 37½ hours. Vacancies will not be filled except in health, education, state security and the armed forces for an unspecified time.
Tax will rise on properties “above average value”, which in reality means 50 per cent of urban property. Ms Saenz de Santamaria said the increases, which “are temporary and only for the next two years”, would raise €6.2 billion.
The cuts announced yesterday are more slash and burn than structural and the government is still ducking the issue of changes to employment status.
Spain’s employment laws have created a two-tier system of virtually unsackable employees with cast-iron contracts – doggedly defended by the trade unions – and a much larger group of workers with no job security.
Employers are reluctant to offer full-time contracts because of the cost of making people redundant. – ( Guardianservice)