Spain unveils austere 2011 budget to cut deficit

By Daniel Woolls, AP
Friday, September 24, 2010

Spain unveils lean 2011 budget

MADRID — Spain unveiled an austere budget draft for 2011 as it fights to cut a bloated deficit that has rattled markets worried about the country’s finances, slashing spending and throwing in a largely symbolic tax hike on the rich.

The blueprint calls for euro122 billion ($163 billion) in spending, nearly 8 percent less than in 2010, Finance Minister Elena Salgado said.

The money that government ministries have available to spend will go down 16 percent on average to the levels of 2006, she told a news conference after the draft was approved in a Cabinet meeting.

Civil servant wages that were already cut this year by an average of 5 percent — part of an emergency austerity plan as Spain was in the eye of the European debt storm — will remain frozen next year, as will most pensions, she added

“This budget is without a doubt the most austere in years,” Salgado said.

The budget is designed to help Spain meet its goal of cutting its budget deficit from 11.1 percent of gross domestic product in 2009 to 9.3 percent this year and eventually to 3 percent in 2013.

“The distribution of spending in this budget is absolutely subordinate to this commitment,” Salgado said.

She declined to reveal the fine print of the budget, saying it was the government’s courtesy to show these first to lawmakers at Parliament. The opposition Popular Party complained however that this was unprecedented and demonstrated the government was not able to explain publicly a document it had just approved.

The draft now goes to Parliament and must be voted on by year’s end.

The tax hike affects people who earn more than euro120,000 a year, who are tiny majority in a country where the average yearly salary is around euro20,000.

It will affect about 100,000 taxpayers in a country of some 45 million and raise euro170-200 million in extra revenue, Salgado said.

The government has been saying for months it would raise the top tax bracket and this was widely seen as a gesture by a Socialist government trying to make amends to supporters furious over a U-turn in policy toward austerity imposed by the European Union and international bodies like the IMF.

The ruling Socialist party leads a minority government that relies on support from opposition parties on a case-by-case basis to get laws passed. The government has become even more isolated of late as parties criticize its handling of Spain’s economic crisis, marked by a 20 percent jobless rate and listless growth after nearly two years of recession.

Failure to pass a budget would be unprecedented and presumably force Prime Minister Jose Luis Rodriguez Zapatero to call early elections.

But Zapatero this week all but assured himself passage of the budget by striking a deal with a small Basque nationalist party.

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