MADRID, Spain — Spanish Prime Minister Mariano Rajoy’s nine-month-old government announced its fifth austerity package Thursday in what may be a move to head off tougher conditions demanded as part of a potential European bailout.
Rajoy’s Cabinet approved a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s thirdbiggest budget deficit. The 2013 target is 4.5 percent of gross domestic product compared with a 6.3 percent goal for this year. He’s risking a deeper recession while an unemployment rate of 25 percent stokes mounting protests.
“It’s a major push for the reduction of the budget deficit,” Budget Minister Cristobal Montoro told reporters in Madrid. “We are making a major shared effort.”
The measures reflect commitments made by Economy Minister Luis de Guindos to his European Union counterparts to increase competitiveness and bolster Spanish finances. Those steps may ease demands creditor countries such as Germany and the Netherlands would make in exchange for a financial lifeline.
Rajoy “wants to seriously limit any conditionality” and preserve as much authority as possible, Antonio Barroso, an analyst at Eurasia Group in London, wrote in a note Wednesday. The package is intended “to limit the demands that would be attached to a rescue package.”
Spain will make more of its budget adjustment through spending cuts than increasing taxes next year even as it tries to shelter pensioners and the unemployed, Montoro said.
“The adjustment isn’t being made on social spending,” Montoro said.
Central government revenue will rise 2.7 percent to $226 billion next year while its spending will increase 5.6 percent, according to the blueprint. Spending cuts of some $51 billion will deliver 58 percent of the deficit reduction.
Rajoy is frustrating some European leaders for delaying a decision on whether to seek a bailout from the euro region’s rescue fund that would allow the European Central Bank to prop up the nation’s bond market. The premier, who has spent close to two months saying he will consider it, said Tuesday in comments to The Wall Street Journal that were confirmed by his office that he would “100 percent” seek help if bond yields remained too high.
Yields on Spain’s 10-year notes rose to a euro-era record of 7.75 percent on July 25. Yields were 5.95 percent in Madrid on Thursday. Anything above 7 percent is considered too high for a country to maintain.
Spain will make a decision about tapping the fund once it has all the information available and has had time to study the data, De Guindos, the economy minister, said Thursday.
In line with a plan sent to Brussels last month, the 2013 budget approved Thursday increases taxes, cuts ministries’ spending by 8.9 percent, and scraps rebates for large companies. The steps meet or exceed all the EU recommendations for Spain, de Guindos said.
The Bank of Spain on Wednesday said early indicators suggest gross domestic product is still falling at a “significant pace” after the recession deepened in the second quarter. Data released this week showed the central government’s overspending overshot its full-year target in August as it bailed out the 17 semi-autonomous regions and the welfare system amid falling tax receipts.
Information for this article was contributed by Ciaran Giles of The Associated Press.
Business, Pages 27 on 09/28/2012