Open

Coming up

Don't miss

Replay


LATEST SHOWS

ENCORE!

Alain Choquette: A Hilarious Magician in Paris

Read more

FOCUS

France welcomes Iraqi Christian refugees

Read more

FRANCE IN FOCUS

Emmanuel Macron: A new economy minister with a pro-business agenda

Read more

THE OBSERVERS

More of this year's best Observers stories

Read more

#TECH 24

Changing the world, one video game at a time

Read more

IN THE PAPERS

Socialist Party summer conference kicks off in explosive atmosphere

Read more

IN THE PAPERS

Canada and Russia exchange snarky tweets

Read more

AFRICA NEWS

Ebola in Nigeria: First death outside of Lagos

Read more

AFRICA NEWS

Niger: Top opposition figure to be questioned in baby-trafficking scandal

Read more

  • First case of Ebola confirmed in Senegal

    Read more

  • British killer escapes from French psychiatric hospital

    Read more

  • Ukraine to relaunch NATO membership bid

    Read more

  • France shines in IMF list of world’s promising economists

    Read more

  • Mapping Ukraine: Canada and Russia in ‘tweet for tat’ row

    Read more

  • Obama has 'no strategy yet' on potential Syria strikes

    Read more

  • Netflix to woo French with ‘House of Cards’ set in Marseille

    Read more

  • French businesses ‘hoping for a new Thatcher’

    Read more

  • Syrian refugees surpass 3 million, UN says

    Read more

  • West backs Ukrainian claims of Russian incursion

    Read more

  • Libyan PM resigns as Islamists set up rival administration

    Read more

  • UN says 43 peacekeepers captured in Golan Heights

    Read more

  • The deleted tweets of Manuel Valls

    Read more

  • Peru seizes record 6.5 tonnes of Europe-bound cocaine

    Read more

  • Pakistan army to mediate between PM, protesters

    Read more

  • PSG face Barcelona, Ajax in tough Champions League draw

    Read more

  • In pictures: Billions of locusts invade Madagascan capital

    Read more

  • Brad Pitt and Angelina Jolie say ‘I do’ in France

    Read more

  • Erdogan sworn in as Turkey's president

    Read more

Europe

Spain unveils tax hikes, warns deficit will rise

Video by FRANCE 24

Text by News Wires

Latest update : 2011-12-30

Spain's new government has unveiled fresh austerity measures to rein in its bigger-than-expected public deficit, including the extension of a public sector wage freeze and a surprise hike of income and property taxes.

AP - Spain’s new government warned Friday that the country’s budget deficit will be higher than anticipated this year as it unveiled a first batch of austerity measures that include surprise income and property tax hikes.

Following the new conservative government’s second Cabinet meeting, the budget deficit for this year was revised up to 8 percent of national income from the previous government’s forecast of 6 percent.

Alongside the upward revision, which comes amid predictions that the Spanish economy will soon be back in recession, the government, which is headed by Prime Minister Mariano Rajoy, announced further measures to get a handle on its debts, including €8.9 billion ($11.5 billion) in spending cuts
.
“This is the beginning of the beginning, ”government spokeswoman Soraya Saenz de Santamaria said. She said more reforms and austerity will come in 2012. The conservative Popular Party took power only last week after a landslide election win on Nov. 20 and its main priority is to make sure that Spain doesn’t get dragged into the debt crisis mire that has already forced Greece, Ireland and Portugal into seeking financial bailouts and is now threatening much-bigger Italy.

Though Spain’s budget deficit is higher than the 3 percent threshold that was supposedly part of the euro’s economic framework, it has so far avoided the same sort of bond market pressure that’s currently afflicting Italy, partly because its overall central government debt burden is relatively low at around 66 percent - Italy’s is around 120 percent. The yield on Spain’s benchmark ten-year bonds stands at just over 5 percent, lower than Italy’s 7 percent, a rate that is widely-considered to be unsustainable in the long-run.

Nevertheless, Spain has to keep a lid on its borrowings especially with unemployment so high and its regions and households so indebted too. An increase in the deficit forecast was not a total surprise, but its size was.

Many economists had predicted an increase because the economy stagnated in the third quarter and is now officially forecast to drop back into recession in the first quarter of 2012. Spain’s jobless rate is 21.5 percent, the highest in the euro zone.

Alongside the spending cuts, the new government maintained a freeze on civil servants’ salaries and on practically all government hiring. Taxes will be raised but only for two years. The increase will be progressive and affect all income tax brackets, but the impact on lower-income earners will be minimal, Treasury Minister Cristobal Montoro said.

Spokeswoman Saenz de Santamaria said the jump in the deficit forecast came as a surprise because the outgoing government was slow in turning over some documents, and the new number had to have consequences. “It is going to force us to take extraordinary measures,” she said.

“We are confronted with an extraordinary and unforeseen situation which is going to force us to adopt extraordinary and unforeseen measures” Property taxes were also raised, but only through 2013. The measures will go before Parliament on Jan. 11.

Passage is assured because the Popular Party has a comfortable majority. The measures are part of an extension of the 2011 budget because the last government did not pass one for 2012.

A bigger austerity whack is expected when the new government passes a full blown 2012 budget by the end of March.

Date created : 2011-12-30

  • Spain

    Spain's new government may ask for international aid

    Read more

  • SPAIN

    ‘No miracles’ warns Spain’s new prime minister-elect

    Read more

COMMENT(S)