It was therefore left to his deputy, Soraya Sáenz de Santamaría, to announce the bad news, accompanied by Energy Minister José Manuel Soria (on the right in the picture) and Treasury Minister Cristóbal Montoro (on the left). In reality, only some general figures were provided, while a clearer breakdown of spending cuts and tax hikes will be provided on Tuesday, after the package is submitted to the Spanish parliament.
We will provide a more comprehensive analysis then (a research piece on Spain is also in the pipeline, so watch this space).
For the moment, these are the most important measures announced today:
- The total adjustment (i.e. cuts plus tax hikes) is of €27.3 billion. In reality, this needs to be added to the €15 billion package which was adopted as part of last year’s budget in December, but will be implemented this year. This gives us a total of over €42 billion
- Spanish ministries will have to cut their budgets, on average, by 16.9%. Foreign Affairs (-54.4%), Justice (-34.6%) and Defence (-31.9%) will face the toughest cuts. Agriculture (-7.4%), Health (-4.3%) and Economy (-3.8%) will be the least touched;
- Electricity bills will increase by 7%, and gas bills by 5%;
- A 'tax amnesty' will be launched. Tax evaders will be allowed to repatriate capital from abroad and will only have to pay 10% tax on the money (not a bad discount, as the highest tax rate in Spain is 43%). The Spanish government estimates that it can make around €2.5 billion out of this repatriation;
- Certain corporate tax exemptions will be scrapped, so Spanish businesses will have to pay more taxes from now on;
- Public investment will also be cut – notably, €1.5 billion will be cut from so-called “Active Employment Policies” (i.e. measures to favour labour market access)
- There will be no VAT increase;
- The salaries of civil servants will be frozen, but not cut;
- Pensions will remain linked to inflation;
- Unemployment benefits will remain untouched.