(ANSAMed) - MADRID - Premier Mariano Rajoy announced what will be Spain's harshest austerity measures since its return to democracy, with spending cuts of 65 billion euros over the next two years in order to make the EU target and reduce the deficit to 3% by 2014. ''The economic situation is dramatic. We must come out of this abyss as soon as possible, whether we like it or not,'' Rajoy told Parliament on Wednesday.
''We take out loans to pay for unemployment benefits, public employee salaries, even public health care. I said I would lower taxes, and find myself raising them. My outlook hasn't changed, but circumstances have and I must adapt to them,'' the Premier said, blaming Spain's present dire straits on the previous Socialist administration. The austerity packet of 37 measures comes in addition to the 27.3 billion euro cuts in state spending and the 16 billion euro cuts in regional spending already in this year's budget, as well as the 15 billion euro anti-deficit package approved by the previous Zapatero administration.
Rajoy's new measures, pending Cabinet approval on Friday, include an immediate hike in the VAT tax, from 18% to 21%, excepting the 4% VAT on prime necessity goods, while VAT on transportation, services and health products will rise from 8% to 10%. This measure alone will take 450 euros a year out of taxpaying families' pockets, according to consumer watchdog groups.
Also in the works are the suspension of Christmas bonuses and reduction of leave for public employees, new limits to early retirement, and cuts in unemployment benefits for the newly laid off, from 60% to 50% beginning in the sixth month. Rajoy also plans to reduce subsidies to political parties, unions and entrepreneurial associations by 20% beginning in 2013, to reduce local councillors by 30%, to cut mayoral benefits, and to slash ministerial spending budgets by 600 million euros. The government is also abolishing tax breaks for first-time home-owners, raising environmental taxes, and, for the third time in 6 months, raising taxes on alcohol and tobacco.
Many of these measures have been requested by the EU in exchange for an extension of the deficit-reduction deadline to 2014, and for the first tranche of the 30 billion euro EU aid package to save the Spanish banking system, whose total cost is 62 billion euros, according to independent audits. Spain must now reduce its deficit from last year's 8.9% figure to 3% of national GDP by 2014.
''We welcome the determination of the Rajoy government,'' EC Economic and Monetary Affairs Spokesperson Simon O'Connor said today. ''These measures are an important step forward to ensure this year's budget objectives are respected.'' Parliamentary opposition leader Alfredo Perez Rubalcaba, who heads the Spanish Socialist Workers Party (PSOE), proposed ''an amendment to the totality'' of the government austerity plan, while offering ''a pact to offset such unfair and ineffective cuts.'' Ignacio Fernandez Toxo and Candido Mendez, leaders of Spain's two major unions, said the new measures ''will sink Spain'' by exacerbating the economy's downward spiral, with GDP down 2% this year and ''close to zero growth'' projected for 2013, as Rajoy himself said in Parliament.
Independent public employee union CSIF has announced strikes and a Constitutional Court appeal against the suspension of Christmas bonuses.
Also on Wednesday, demonstrating miners - who had just arrived in Madrid after a 400-km, 18-day march on foot from the mines of Asturia, Leon and Aragon to demand the government keep the mines open, clashed with police in front of the Ministry for Industry. Violent groups of the miners threw firecrackers, stones, and bottles at the police, who wore riot gear, and who charged at demonstrators to try to disperse them, also firing rubber bullets. At the end of the day, 76 people were injured and seven demonstrators were arrested. (ANSAMed).