Spain’s Austerity package stretched 4 times in 7 months.

Category: ECB-European Central Bank | Eurozone | Spain
July 11, 2012 | Comments Off |
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Spain’s Austerity package

Spain’s Austerity package stretched 4 times in 7 months.

Spain’s austerity package, the fourth in seven months announced by Prime Minister, Mariano Rajoy, proposed a 3-point hike in the main rate of Value Added Tax on goods and services to 21% from 18% & the reduced rate to 10 from 8%. The austerity package also outlined cuts in unemployment benefit and civil service pay and perk. The amendments to the budget come less than two weeks after it went into effect. This move could further depress consumer spending.

“These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billions of euros,” Rajoy told the parliament. The austerity package also announced new indirect taxes on energy, plans to privatize ports, airports and rail assets, and a reversal of property tax breaks that his party had restored last December. The austerity package will also scale back unemployment benefits and only study pension cuts (he did not touch pensions – keeping one election promise); consolidate local governments and eliminate the year-end bonus for public workers. The budget measures, covering the next two-and-a-half years, are about double those previously announced.

With five years of economic stagnation and recession, unemployment at 24.4% and tax revenue falling, Spain is struggling to meet tough deficit cutting targets agreed with the European Union. Rajoy, in power since December, earlier opposed raising value-added tax when the previous government increased the rate. He denied in a debate he planned to cut unemployment benefits, which amount to about 30 billion euros a year. “I said I would cut taxes and I’m raising them,” Rajoy said. “But the circumstances have changed and I have to adapt to them.”

With the latest austerity package, Rajoy completely overhauled his previous budget plan, in which the central government and 17 autonomous regions had put in place some 48 billion euros in savings for 2012, insufficient to bring the deficit into line. Spain won an extra year this week to bring its deficit within the EU’s 3 percent limit as European finance ministers agreed to loosen the 2012 deficit goal to 6.3% of GDP from 5.3%. The government forecasts a contraction of 1.7% this year and Rajoy said today the slump would continue next year.

Miners Protest over Austerity package

As Rajoy announced the new austerity package, hundreds of coal miners marched through the center of Madrid to protest against a previous 60% cut in coal subsidies that they say will shut down mines and put them out of work.

The miners, who had walked some 400 km (250 miles) from the Asturias region over 44 days, were joined by thousands of supporters, including labor activists, on Wednesday after receiving a hero’s welcome in the capital on Tuesday night as they marched in with lamps lit on their helmets. Public anger over spending cuts has risen as school and hospital budgets have been hit. “Without the mines we don’t have anything, absolutely nothing in our region,” said one of the miners in the protest, Albano Gonsalvez.

With nearly one quarter of the workforce and more than half of young Spaniards without a job, the government said unemployment benefit would fall to 50% of previous earnings from 60% after the first six months on the dole. Rajoy said the measure was intended to increase the incentive to look for work.

Economic Forecast 2012: As announced almost a year ago.

Taxes will be ruthlessly imposed with a view to alleviate the social disasters of the time leading to the further lowering of living standards…..

Putting food on the table will be a more pressing concern than buying luxuries or gifts. Inflation & scarcity of food will be severely felt. Inflation on the rise


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