Spain unveils $36 billion austerity package
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Last Updated: Saturday, March 31, 2012, 00:30
Madrid: Spain's new conservative government unveiled a USD 36 billion deficit-reduction package for this year, that it hopes will convince its partners in Europe and wary international investors that it won't need a bailout.

The measures announced today include big spending cuts and tax increases on large companies, but there was no increase in the sales tax, as had been widely-predicted in the run-up to the administration's first fully-fledged budget.

Finance Minister Cristobal Montoro said it was the biggest deficit cut since Spain regained democracy in 1977 after the death of Gen. Francisco Franco.

Spain is having to take drastic measures to get a handle on its debts, even at a time of recession which has seen unemployment balloon to nearly one in four, as investors remain sceptical that it can avoid the same bailout fate that befell Greece, Ireland and Portugal.

"We are taking extraordinary measures because the situation is extraordinary," Montoro told a news conference after a Cabinet meeting at which the budget plan was passed.

The blueprint will go to Parliament on Tuesday and is expected to be formally passed in June. The plan is that Spain will reduce its budget deficit to 5.3 per cent of its gross domestic product from 8.5 per cent last year.

The challenge is doing so as the economy is in recession and unemployment stands at nearly 23 per cent.

Spain's economic output last year was worth a little over a trillion euros, or double the size of the three bailed out economies combined.

Many in the markets think the euro's long-term viability rests on whether the country can avoid a bailout that would stretch the resources of its partners in the 17-country eurozone.

Deputy Prime Minister Soraya Saenz de Santamaria said the 2012 draft budget calls for cutting central government ministry spending by an average of nearly 17 per cent and freezing civil servant wages.

Overall government spending will be cut by USD 22.6 billion.


First Published: Saturday, March 31, 2012, 00:30

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