Spain’s conservative Popular Party government has approved a new austerity package, its fourth in seven months, saying the measures it contains are justified by the country’s financial crisis and the large budget deficit inherited from the previous Socialist administration.
“We’ve adopted necessary, important and pressing measures,” Deputy Prime Minister Soraya Saenz de Santamaria said Friday in a press conference to explain the decisions of the weekly cabinet session.
The measures, unveiled Wednesday by Prime Minister Mariano Rajoy in an address to the lower house of parliament, include a hike in the value-added, or sales, tax starting 1 September, a reduction in unemployment benefits and the elimination of this year’s Christmas bonus for millions of public-sector employees.
Accompanied by Economy Minister Luis de Guindos and Finance Minister Cristobal Montoro, the deputy premier announced the approval of the package aimed at lowering the federal budget deficit by 65 billion euros ($80 billion).
“We’re asking many Spaniards who are already in a difficult situation to make significant sacrifices to get the country going,” she acknowledged.
Saenz de Santamaria reiterated the administration’s oft-repeated argument that the Socialist Workers Party of Spain, or PSOE—which governed from 2004 to 2011 and left behind a budget deficit equivalent to 8.9 percent of gross domestic product in 2011, nearly three percentage points higher than its target of 6 percent of GDP for that year—is to blame for the country’s financial woes.
Rajoy took office last 21 December.
Referring to the sales-tax increase, Montoro said it is “necessary due to the circumstances, the recommendations (of the European Union), and the absolute priority of reducing the budget deficit”.
The government also said it will proceed this month with airport and railway privatization plans that had been scrapped early this year and confirmed a hike in the tobacco tax.
The new measures are part of Spain’s obligations to its fellow eurozone members in exchange for a bank bailout of up to 100 billion euros ($122 billion) and additional time to bring its budget deficit in line with European Union mandates.
Spain’s economy has been battered by the global recession and the collapse of a massive real-estate bubble, which has left banks saddled with toxic property assets.
The overall unemployment rate stands at almost 25 percent and nearly half of Spaniards under 25 are jobless, while tens of thousands of families have been evicted from their homes after falling behind on their mortgages.
In recession for the second time in three years, the country has suffered a sharp drop in tax revenues stemming from failures of numerous businesses and the high joblessness.
Rajoy’s administration says it is committed to growth but that the first step to economic recovery for Spain is getting its financial house in order.