Spain reforms to raise €56.4 billion

 

The Spanish government's most recent reforms will slash €56.4 billion from the public deficit in the next two and a half years, an official document showed on Saturday, leaving a gap to be filled by taxes on energy.

Mariano Rajoy pledged €65 billion of savings from tax hikes and spending cuts on Wednesday in a painful package aimed at convincing the EU and investors it is serious about reform.

The €8.6 billion shortfall will be covered by other measures such as new energy and environmental taxes, according to a document posted on the Economy Ministry's website.

Of the €56.4 billion of measures laid out so far, about €34.4 billion will come from changes to tax rates and €22 billion from spending cuts until 2014.

The government has said it will approve a new energy tax scheme in July that will force utilities and consumers to share the burden of a €25 billion tariff deficit to energy companies.

Spain needs to erase €65 billion euros from its public deficit in order to reach tough EU debt reduction targets by 2014. Spain must cut its public deficit of 8.9% of GDP to 6.3% in 2012, 4.5% in 2013 and 2.8% the year after.

But the most recent reforms have provoked protests across the country from citizens tired of bearing the burden for an economic crisis they blame on bankers and politicians.

Thousands of Spaniards have gathered in cities across Spain since Rajoy unveiled the measures on Wednesday and more protests were expected on Sunday, a Madrid police source said.

Spain's 2 largest unions pledged widespread action in September to protest the measures but stopped short of saying whether the movement will be in the form of a general strike. The country's public workers have already called their own strike for September.

Aside from sweeping tax reforms, including a 3 percentage point hike in IVA (VAT) rates, civil servants will bear the brunt of the new austerity in the form of wage cuts, job reductions and the elimination of certain perks.

The government also took steps to crack down on a large underground economy that has been a source of extra income for some of Spain's more than 5 million unemployed.

In the state bulletin published on Saturday outlining the latest reforms, Spain reserves the right to cancel dole payments on sufficient evidence of fraud.

It also reserves the right to backtrack on a pledge to compensate for cutting civil servants' 2012 Christmas bonus through a 2015 pension fund contribution if it is struggling to meet its deficit goal.

In another move to raise revenues, the government will eliminate a tax break for first-time home buyers who purchased before January 20, 2006, the state bulletin showed.