Spain unveils spending cuts to tackle deficit
Austerity package set to save $11.5bn, with 2011 deficit estimated to equal eight per cent of GDP, well above target.
Last Modified: 30 Dec 2011 16:46

Spain's new conservative government has unveiled its first austerity measures as it tries to reassure markets of its plan to get a grip on public finances and revive an economy amid severe unemployment.

Spain's new government said on Friday the public deficit for 2011 would come in at eight per cent of gross domestic product, well above a target of six per cent, and announced income- and property-tax increases and a civil-servant-wage freeze in response.

With much of the country on holiday, Mariano Rajoy, the prime minister, was presiding over a cabinet meeting that approved the first in what is expected to be a painful series of spending freezes or cuts.

Soraya Saenz de Santamaria, the deputy prime minister in the new Popular Party-led centre-right government, outlined public-spending cuts worth $11.5bn (8.9bn euros) to tackle the deficit.

"We're facing an extraordinary and unexpected situation, forcing us to take extraordinary and unexpected measures," she said.

Santamaria announced that Spain will extend a public-sector pay freeze for another year in 2012 and freeze the hiring of civil servants to reduce the public deficit.

A full-blown 2012 budget is expected in late March.

The government also decided to freeze public-sector hiring in all areas except for health, education, policing and tax inspection, Santamaria said.

'Sending a message'

The previous Socialist government cut public-sector wages by an average of 5.0 per cent in May 2010 before freezing civil servant salaries this year.

"Today's meeting really is designed to send a message which is that the cuts start now," Dr Nigel Townson, a professor of political science in Madrid, told Al Jazeera.

"There's no question that they're going to carry out [more] very severe cuts over the next few months."

Cristobal Montoro, the new treasury minister, announced tax increases on Friday that will focus on the wealthy, raising around 6bn euros.

The conservatives, who swept to victory in November amid dissatisfaction over the Socialists' handling of the crisis, have pledged to turn the economy around while reforming a broken labour market and pulling the country out of a prolonged slump.

Rajoy has repeatedly said he is determined to meet Spain's commitment to cut its budget deficit to 4.4 per cent of GDP in 2012.

Worries over Spain's public finances and a banking sector heavily exposed to a property bubble that burst in 2008, have caused the country's borrowing costs to rise sharply.

There are fears Spain could end up suffering the same fate as the three bailed-out eurozone countries - Greece, Ireland and Portugal.

Al Jazeera and agencies
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