THE SPANISH GOVERNMENT will today announce its 2013 Budget – preparing around €39 billion in tax increases and spending cuts, in a bid to soften the terms of any prospective bailout.
The package, to be announced this afternoon, comes as thousands of demonstrators gather outside the parliament building in Madrid in opposition at the hard-hitting adjustments.
Reuters said the measures – which will be announced at a news conference, and not in the parliament itself – are likely to include the creation of a new tax oversight body, limits on early retirement, an increase in carbon taxes, and a continued public wage freeze.
Departmental sources told the agency that government departments would also see their central funding slashed, with the budget for the culture department slashed by a third and funding for the agriculture department down by about 30 per cent. Infrastructure spending is also likely to be hit.
The announcements come only a day after the country’s central bank predicted that economic growth would grind to a halt in the third quarter of 2012 – and two days after exchequer returns showed Spain was likely to miss the deficit-to-GDP target of 6.3 per cent set down by the EU.
Prime minister Mariano Rajoy yesterday increased expectations that a sovereign bailout was not far away for Spain – telling the Wall Street Journal that he would “100 per cent” ask for a bailout if Spain’s cost of borrowing was too high.
The cost of a 10-year loan for Spain went back over the 6 per cent mark in response to those remarks, as well as the trilateral statement from Germany, Finland and the Netherlands which cast question marks over the criteria on how the European Stability Mechanism can assist in banking bailouts.
The prospect of Spain needing a sovereign bailout will be of particular interest to Ireland – as Ireland is obliged to fund just under 1.6 per cent of any bailouts from the ESM, the permanent bailout fund that EU leaders hope to formally establish next month.
Previous reports have suggested the European Central Bank and IMF were preparing a €300 billion rescue package for Spain – of which Ireland would have to contribute about €3.184 billion.