Spain reforms to raise 56.4 billion euros

Monday, 16 July 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The Spanish government’s most recent reforms will slash 56.4 billion euros from the public deficit in the next two and a half years, an official document showed on Saturday, leaving a gap to be filled by taxes on energy.

Spanish Prime Minister Mariano Rajoy pledged 65 billion euros of savings from tax hikes and spending cuts on Wednesday in a painful package aimed at convincing the EU and investors his government is serious about reform.

The 8.6 billion euro shortfall will be covered by other measures such as new energy and environmental taxes, according to a document for international investors posted on the Economy Ministry website.

Of the 56.4 billion euros of measures laid out so far, about 34.4 billion euros will come from changes to tax rates and 22 billion from spending cuts until 2014.

The government has said it will approve a new energy tax scheme in July that will force utilities and consumers to share the burden of a 25 billion euro tariff deficit to energy companies.

Spain needs to erase 65 billion euros from its public deficit in order to reach EU debt reduction targets by 2014. It must cut its public deficit of 8.9 percent of gross domestic product to 6.3 percent in 2012, 4.5 percent in 2013 and 2.8 percent the year after.

But the most recent reforms have provoked protests from citizens tired of bearing the burden for an economic crisis they blame on bankers and politicians. Nearly one in four is unemployed in the country.

Thousands of Spaniards have gathered in cities across Spain since Rajoy unveiled the measures on Wednesday and more protests were expected on Sunday, a Madrid police source said.

Speaking at a party rally in Granada, Rajoy said the unpopular reforms were necessary to put the country back on a path of growth and job creation.

“None of us like the decisions taken in the last few days, but if we hadn’t taken them things would be much worse,” Rajoy told his supporters. “This is a great country and you have a government that will get us out of this crisis.”

Spain’s two largest unions pledged widespread action in September to protest the measures but stopped short of saying whether the movement will be in the form of a general strike. The country’s public workers have already called their own strike for September.

Aside from sweeping tax reforms, including a 3 percentage point hike in value-added tax (VAT) rates, civil servants will bear the brunt of the new austerity in the form of wage cuts, job reductions and the elimination of certain perks.

In the official publication of the reforms on Saturday, the government also took steps to crack down on fraud by the unemployed, reserving the right to cancel dole payments on evidence of any wrongdoing.

Many unemployed find work in a large underground market the government has so far struggled to fight.

Madrid also reserves the right to backtrack on a pledge to compensate for cutting civil servants’ 2012 Christmas bonus through a 2015 pension fund contribution if it is struggling to meet its deficit goal.

In another move to raise revenues, the government will eliminate a tax break for first-time home buyers who purchased before January 20, 2006, the state bulletin showed.