Spain slashes 2012 budget

The Spanish government has said it's willing to push through a drastic austerity budget for this year. On Friday, it proposed savings totaling 27 billion euros ($35 billion), thus reacting to growing international concern over the country's fiscal health.

The government described the new budget as the most severe since Spain became a democracy back in 1975. The huge cuts are expected to pass easily in parliament, because the ruling People's Party has an absolute majority.

The proposed savings will affect the individual budgets of ministries which are to be slashed by almost 17 percent each. In addition, Madrid plans to increase taxes on large companies, court fees and electricity tariffs. It will also freeze the salaries of civil servants.

Not affected by the harsh cuts will be pensions, unemployment benefits and scholarships. Value-added tax will not change either.

Budget consolidation a priority

"The goal was to cut the deficit without paralyzing Spain's economic recovery," said Deputy Prime Minister Soraya Saenz de Santamaria in a statement on Friday.

Prime Minister Mariano Rajoy's conservative government had been struggling to trim the budget deficit from 8.5 percent of gross domestic product in 2011 to the 5.3 percent target that it agreed with the European Union for this year.

Friday's detailed austerity measures were announced just one day after a general strike that crippled production and public transport. The large-scale protest action brought almost 1 million demonstrators to the streets across the country.

Economic pundits remain divided over whether the massive budget cuts will do the Spain economy any good in the medium-term. There are fears the austerity policies may increase the country's recession woes, with a 1.7 contraction of the economy forecast for 2012.

Unemployment remains another worry for the government. The jobless rate has already soared to nearly 23 percent, the highest across the 27-member European Union.

hg/cmk (dpa, AFP)