Country imposes another round of austerity, aiming to shave $79B off budgets

Spain’s government imposed more austerity measures on the beleaguered country Wednesday as it unveiled sales tax hikes and spending cuts aimed at shaving C65 billion ($79.85 billion) off the state budget over the next two and a half years.

MADRID, Spain — Spain’s government imposed more austerity measures on the beleaguered country Wednesday as it unveiled sales tax hikes and spending cuts aimed at shaving C65 billion ($79.85 billion) off the state budget over the next two and a half years.

A day after winning European Union approval for a huge bank bailout and breathing space on its deficit program, Prime Minister Mariano Rajoy warned Parliament that Spain’s future was at stake as it grapples with recession, a bloated deficit and investor wariness of its sovereign debt.

“We are living in a crucial moment which will determine our future and that of our families, that of our youths, of our welfare state,” Rajoy said to catcalls from the opposition socialists and other parties as he revealed the biggest single amount of projected deficit savings in modern Spanish history.

He spoke as thousands of miners stung by a huge cut in government subsidies were joined by protesters to demonstrate outside the Industry Ministry in Madrid. The protests later turned violent with riot police firing rubber bullets on crowds after they were pelted with fireworks and rocks.

The spending cuts, designed to cut C65 billion off state budgets by 2015, include a wage cut for civil servants and members of the national parliament and a new wave of closures at state-owned companies. Spain will also speed up a gradual increase in the retirement age from 65 to 67. They are to be approved officially Friday at a Cabinet meeting.

Spain has had to digest round after round of austerity measures since Rajoy’s conservative government took power in December. Until now, there have been C60 billion ($73.71 billion) in spending cuts and tax hikes by the central government or regional administrations. If you include measures taken by the previous, Socialist government, the number goes up to C75 billion. Now, albeit spread over two-and-a-half years, comes another C65 billion.

“This is the reality. There is no other, and we have to get out of this hole and we have to do it as soon as possible and there is no room for fantasies or off-the cuff improvisations because there is no choice,” Rajoy told Parliament.

The measures are in exchange for the bank bailout of up to C100 billion ($122.85 billion) granted to Spain by the other 16 countries that use the euro and extra time to cut the Spanish budget deficit. Finance ministers approved the bailout program at meetings in Brussels this week and as much as C30 billion could flow to Spain’s banks by the end of the month. The country’s banks are saddled with billions of euros in toxic loans and assets following the collapse of the country’s real estate market. The full amount Spain will seek is not yet known.

Europe’s finance ministers also this week extended Spain’s deadline for achieving a budget deficit of less than 3 per cent of its annual economic output, until 2014. The size of Spain’s economy in 2011 is estimated to have been $1.5 trillion.

The bank aid and the deficit-cutting come at the cost of greater EU supervision of Spain’s finances, both for the government and the banks, even though Rajoy’s government insists it has given up no sovereignty.

“In exchange for the bank bailout agreement, Brussels, the ECB and the IMF have placed Spain and its institutions in a situation of strict monitoring and control,” Spanish newspaper El Pais said in an editorial Wednesday.

The concern among investors and Europe-watchers is that further austerity cuts will push Spain’s economy further into recession in the short term, making it even harder for the government to trim its deficit.

Spain — the fourth-largest economy in the eurozone — has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry. There are fears that should Spain need a bailout of its own as did Greece, Ireland and Portugal, the eurozone would struggle to finance it, pushing the region further into recession.

However, said Mark Miller of Capital Economics in London, markets are concentrating on the planned bank bailout, which could get the economy up and running again by providing businesses and households.

So if the bailout works, it should eventually compensate for the bitter cocktail of the new austerity package. “’It is the classic case of short-term pain for longer-term gain,” Miller said.

Wednesday’s increases in sales tax include a 3 percentage point hike on products and services like clothing, cars, cigarettes and telephone services to 21 per cent and a 2 percentage point increase on goods such as public transport fares, processed foods and bar and hotel services to 10 per cent. The sales tax on basic goods like bread, medicine and books stays at 4 per cent.

Other measures outlined Wednesday included:

—C660 million of cuts in government spending beyond the reductions already outlined in the 2012 budget

— wage cuts for civil servants and members of the national parliament

— further closures of state-owned companies

— tax deductions for homeowners to be scrapped

— a 30 per cent cut in the number of town councillors

— slight reduction in unemployment pay, designed to encourage jobless people to seek work more quickly.

— 20 per cent cut in government subsidies to political parties and labour unions.

— possible privatization of ports, railways and airports

In Brussels, spokesman Simon O’Connor said the European Commission, the EU’s executive arm, welcomed the government’s announcement of the new measures as “an important step to ensure that the fiscal targets for this year can be met.”

Financial markets greeted news of the measures. The interest rate on Spain’s benchmark 10-year bond dropped 0.23 per cent to 6.57 per cent, away from the 7 per cent levels it reached earlier this week, while the country’s IBEX stock index closed up 1.17 per cent at 6,805.9.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Heather Buelow, owner of Aerial Edge Studio in Blackfalds, says she has spent ‘all of my saving keeping the studio going’ through government-mandated shutdowns during the COVID-19 pandemic. (Contributed photo)
Either open in-person or close permanently: Central Alberta yoga studio defying rules

A central Alberta woman is allowing clients back into her yoga and… Continue reading

(MaxPixel)
Sandra Schmirler Foundation donates $10,000 to Red Deer hospital

Donation will go towards electronic fetal heart monitoring project

A sustainability audit for Westerner Park suggested 33 changes, including more city involvement. (Advocate file photo)
Westerner Park expands volunteer program

As Westerner Park refocuses the organization, they are reigniting their emphasis on… Continue reading

Madelyn Boyko poses along with a number of the bath bombs she makes with her mom, Jessica Boyko. Madelyn says she enjoys making the bath bombs with her mom as it is a special time for just the two of them. (Photo Submitted)
5-year-old Sylvan Lake girl selling bath bombs in support of younger brother

Madelyn Boyko is selling bath bombs for CdLS research in honour of her younger brother

Minister of Public Safety and Emergency Preparedness Bill Blair responds to a question during question period in the House of Commons on Parliament Hill in Ottawa on December 11, 2020. THE CANADIAN PRESS/Patrick Doyle
New regulator to stop sexual exploitation of children online: public safety minister

OTTAWA — Public Safety Minister Bill Blair says the government will introduce… Continue reading

Gordon Greenwood Elementary Grade 7 students were assigned to write about climate change. The Langley Advance Times is pleased to present a selection of their writings. (Sasha/Special to the Langley Advance Times)
Canada’s greenhouse gas emissions increased slightly in 2019: report

OTTAWA — A new report shows Canada’s greenhouse gas emissions increased slightly… Continue reading

Conservative leader Erin O'Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. Top Tory leaders of past and present will speak with supporters today about what a conservative economic recovery from COVID-19 could look like. THE CANADIAN PRESS/Sean Kilpatrick
O’Toole to vote against Conservative MP’s private bill on ‘sex-selective abortion’

OTTAWA — Conservative Leader Erin O’Toole says he will vote against a… Continue reading

Eugene Kwon of Gratia Bakery and Cafe says the business will be relying on take out orders and a small patio. (Neil Corbett/The News)
Small business struggling amid COVID-19 pandemic looks for aid in Liberals’ budget

OTTAWA — A group representing thousands of the country’s small businesses says… Continue reading

Ron Howard is photographed at the "Inferno" film premiere on Oct. 25, 2016 in Los Angeles. (Buckner/Rex Shutterstock/Zuma Press/TNS)
Brothers Ron and Clint Howard have memoir coming in October

NEW YORK — Filmmaker-actor Ron Howard and actor Clint Howard, brothers, former… Continue reading

FILE - In this Saturday, March 27, 2021 file photo, Buffalo Sabres’ Taylor Hall plays against the Boston Bruins during the second period of an NHL hockey game, in Boston. The Buffalo Sabres could trade 2018 MVP Hall, who signed for just this season and is a pending free agent. (AP Photo/Michael Dwyer, File)
Boston Bruins acquire Taylor Hall to kick off NHL trade deadline day

Trade deadline day in the NHL has started with the Boston Bruins… Continue reading

The Huawei logo displayed at the main office of Chinese tech giant Huawei in Warsaw, Poland, on Friday, Jan. 11, 2019. Poland’s Internal Security Agency has charged a Chinese manager at Huawei in Poland and one of its own former officers with espionage against Poland on behalf of China. (AP Photo/Czarek Sokolowski)
Huawei, HSBC agree on document deal for extradition case

HONG KONG — Chinese telecommunications equipment firm Huawei said Monday that it… Continue reading

Most Read