Austerity bites deeper in Spain

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Austerity bites deeper in Spain

Austerity bites deeper in Spain
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Spain’s government has announced further deep budget cuts for this year in its increasingly unpopular austerity drive, one day after an anti-austerity general strike paralysed Spain.

All ministries will have their spending slashed by just under 17 percent.

Civil servants’ salaries will also be frozen this year and electricity prices will rise by seven percent.

The tough austerity measures were demanded by Brussels to slash Madrid deficit to manageable levels.

Deputy Prime Minister Sáenz de Santamaría said: “The government is trying to put in place all the measures necessary to change the situation – to end Spain’s complicated public deficit and unemployment situation, so that we can return to growth and hire workers. “

“This government will not raise value added tax but is calling for an extra effort within corporate taxes,” she added.

The austerity measures – including some announced last December – add up to 27 billion euros.

Changes in taxes on personal income and company profits should increase revenues — particularly the elimination of corporate tax deductions.

Madrid hopes to cut the deficit this year to 5.3 percent of GDP, the level the European Union says is needed to avoid a Greek style bailout. Last year it was 8.5 percent.

There will be no changes to jobless benefits, a major expense in a country which has the highest unemployment rate in Europe with almost 24 percent of the workforce is on the dole and half of all Spaniards of working age under 25 without a job.

The cuts come despite popular resistance – a general strike on Thursday disrupted transport, halted industry and on occasion erupted into violence – and against a grim economic backdrop; Spain is thought to have fallen back into recession in the first quarter of 2012.

Some economists are concerned that deep austerity measures could hurt already weakened growth and further endanger the deficit targets.

Total cuts of over 42 billion euros between the central administrations and the regional authorities could be tough for an economy struggling to grow, economists warn.

Power shock

Industry Minister Jose Manuel Soria said the seven percent increase in electricity prices would help contain an accumulated 24 billion euro deficit caused by utility companies selling electricity below what it cost to produce.

He said the increase would have been 30 percent if consumers alone had been required to pay to keep the “tariff deficit” within legal limits for this year, and to eliminate it next year.

However utilities would also contribute by cutting costs and some extra contribution would come from the government, he said.