Spain budget: Cuts to total 27bn Euros this year


Spain is cutting 27bn euros ($36bn; £22.5bn) from its budget this year as part of one of the toughest austerity drives in its history.

Changes will include freezing public sector workers’ salaries and reducing departmental budgets by 16.9%.

The government says it will raise 12.3bn euros this year, aided by an increase in tax for large companies.

Deputy Prime Minister Soraya Saenz de Santamaria said the nation was in an “extreme situation”.

“Our top priority is to clean up public accounts,” she said.

“This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs.”

But economists are questioning whether the cuts will be enough to satisfy Spain’s European partners.

‘Insufficient’ cuts

Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain’s deficit to 5.3% of GDP in 2012.

A government minister said Spain needed to tighten up its finances to meet EU targets for reducing deficits without stifling economic growth and job creation.

That is the challenge.

Privately some in government accept these calculations involve a risk.

The economy is in recession and some predict it will shrink by around 2% this year – even before these savings are made.

The fear is that Spain could be tipped into a downward spiral.

Javier Diaz Gimenez, professor of economics at IESE Business School in Madrid, said: “This [budget] seems to be non-credible.

“They will not be making the 5.3% target agreed with Brussels, because the cuts are insufficient given the growth forecast,” he told BBC News.

According to official forecasts the Spanish economy will shrink by 1.7% this year.

Under the 2012 budget the unemployed will see their benefits maintained and pensions will continue to rise.

Consumers have also been spared some pain as VAT will remain at its current level.

But they can expect higher fuel bills as Energy Minister Jose Manuel Soria announced a rise in tax on electricity and gas from 1 April.

The budget will go before Parliament on Tuesday and is expected to be formally passed in June.

Deputy Prime Minister Soraya Saenz de Santamaria said "serious efforts" were needed