Spain’s new conservative government, led by Prime Minister Mariano Rajoy, announced Friday an austerity package that includes spending cuts of 8.9 billion euros ($11.5 billion) and an increase in the income tax.
Barely 10 days into its term, the Popular Party administration presented the measures as “the beginning of the beginning of some indispensable structural adjustments to reduce the deficit and energize the Spanish economy.”
The deputy prime minister, Soraya Saenz de Santamaria, said Spain will end 2011 with a cumulative public sector deficit equal to 8 percent of gross domestic product, “much more elevated than what the previous government had communicated and promised.”
The Socialist administration that left office last week had predicted a deficit equal to 6 percent of GDP.
Suggesting former Premier Jose Luis Rodriguez Zapatero and his team provided inaccurate data to the incoming PP government, Saenz told reporters after Friday’s Cabinet meeting that the Rajoy administration is “ready to make decisions” to address the deficit.
The steps announced Friday include a continued freeze on civil servants pay - already cut by an average of 5 percent in 2010 - and a freeze on Spain’s minimum wage, which, at 641 euros ($824) a month, is among the lowest in the European Union.
Public employees will see their working week increased to 37.5 hours and most government departments face a ban on new hiring.
The bulk of the 8.9 billion euros in initial spending cuts will fall on the ministries of Development, Industry, Economy and Foreign Affairs, Saenz said.
The “new situation” created by the higher-than-expected deficit is forcing the government to adopt “extraordinary measures” that were not anticipated, the deputy prime minister said, explaining the traditionally tax-wary PP’s decision to hike income and property taxes.
The higher levies are expected to bring in an additional 6 billion euros ($7.8 billion), Finance Minister Cristobal Montoro said at the same press conference.
The increase will range from 0.75 percent for the lowest-paid workers to 7 percent for those with the highest salaries, he said.
Fulfilling a pledge Rajoy made last week, the Cabinet agreed that pensions will rise 1 percent in 2012 to compensate for inflation.
And to “protect the weakest,” Saenz said, the new administration will continue payments of 400 euros ($518) a month to unemployed people who have exhausted their benefits, a policy adopted by the Zapatero government as the ranks of the jobless swelled to nearly 5 million, or more than 21 percent of the workforce.
Though PP spokesman Esteban Gonzalez Pons praised the package announced Friday for sparing the poorest, a leader of the leftist IU coalition, Cayo Lara, blasted the government for increasing personal income taxes while leaving corporate rates untouched.
