Spain Fiscal


Spain: Government unveils austere budget for 2012

March 30, 2012

On 30 March, the government presented its budget for the year 2012 in which it plans to cut the fiscal deficit to 5.3% of GDP, down from the 8.5% of GDP shortfall recorded in 2011. In nominal terms, the adjustment amounts to EUR 27.3 billion, the largest budget cut in the country's recent history. The 5.3% of GDP deficit level is below the 5.8% goal that the government initially announced in February and is part of the Spanish government's commitment to European authorities to reduce the fiscal gap to the 3.0% stipulated by the Maastricht criteria by 2013. In order to achieve this massive fiscal adjustment, the government announced a sharp reduction in expenditure (EUR 15 billion), while simultaneously increasing some taxes (EUR 12.3 billion). On the expenditure front, the Rajoy administration will cut ministerial spending by 16.9%, including a wage freeze for civil servants. However, basic social expenditures such as unemployment benefits or retirement pensions will remain unchanged. On the revenue side, the government announced an increase in corporate taxes for larger companies, as well as a raise in tobacco, electricity and gas taxes. In addition, the government is offering a one-off tax amnesty which aims at raising EUR 2.5 billion. These measures come on top of an increase in income taxes approved at the end of 2011. The administration explained that the Value Added Tax (VAT) will not be modified. The budget bill has been met with widespread criticism within the country, as the severe fiscal adjustment is expected to drive the economy back into recession, although the government argues that the economic situation requires extraordinary measures. The bill comes a day after a general strike organized by the major unions to protest against a labour reform recently approved by the Spanish parliament that will make it easier for companies to lay people off. Consensus Forecast panellists are sceptical about the government's ability to meet its fiscal goals and project.


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