Issue 773 28 September - 04 October 2012
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Spain announces new spending cuts AS many had predicted, the budget for 2013 is harsh, according to immediate reaction from analysts. As we go to press we bring you live coverage of the announcement that will determine the immediate future of the country and its relationship with the rest of Europe. Speaking outside the cabinet office, Government Deputy Prime Minister Soraya Saenz de Santamaria began the announcement with a statement saying that there will be a new independent budgetary authority, which will monitor deficit reduction and government spending. She said that some 43 new laws to reform the Spanish economy will be put forward over the next six months. Spain will adopt new measures to reform public administration and deepen labour market reform. Energy, services and telecom sectors will be liberalised further. A new car scrapping scheme will be introduced to try and boost the automotive sector. As expected, the Government will adopt measures to limit early retirement and will also put its hand into the state social security reserve fund to remove three billion euros in order to cover liquidity problems in Spain’s old-age pen-
sion system. Luis De Guindos, Finance Minister, announced measures to dissuade people from taking early retirement, rather than do anything more radical, such as raising the age from 65 to 67, as had been predicted in some quarters. Guindos was repeatedly stressing how each reform is in line with European recommendations. Analysts are already commenting that by keeping close to recommendations made by the European Commission, both Brussels and Madrid believe that, if a request for bailout aid comes, eurozone
lenders will not impose more onerous conditions on them in return for the assistance. On whether the country will head to Brussels to seek a full-scale rescue, Guindos says that Spain is still analysing conditions of the ECB bond buying programme, and that a decision will be made when the impact on Spain and the eurozone is fully known. Spanish Treasury Minister Cristobal Montoro, said he sees a “soft recession” in 2013, which he hopes will be the last year of the crisis. The actual growth number is -0.5 per cent. Montoro
says adjustment in spending will be worth 0.77 per cent of GDP in 2013. Adjustment in revenue will be worth 0.56 per cent of GDP. These cuts are aimed at chopping 40 billion euros off Spain’s budget deficit next year. The government believes unemployment has bottomed out and is predicting an average rate of 24.3 per cent for next year. Absolutely terrible news for Spaniards: in future, lottery wins over 2,500 euros will be taxed for the first time at a rate of 20 per cent under the new gambling tax.
More seriously, Montoro says the interest bill on Spain’s public debt will rise next year from 28.8 billion in 2012 to 38.6 billion. That is higher than expected and will wipe out almost all the increased take from VAT. Also in the mix were figures stating that the tax take next year would rise from 170 billion to 175 billion. Government ministry spending will fall by 8.9 per cent. The government announced that it wants its people to take away the message that with all the spending cuts, just under 64 per cent of its budget will
still go on what it calls “social spending,” such as pensions, benefits, etc. As we go to press, the Ministers are taking questions. In our issue next week we will bring readers a fuller analysis of what this 2013 budget could signal for the future. But as readers will recall, before the release of the budget details, Prime Minister Mariano Rajoy stressed his commitment to fiscal and structural reforms, saying that all segments of Spanish society will need to make Continued on page 3.