Canarian Weekly
05-10-2012, 12:50
After much speculation in the media, the Spanish government presented a draft budget for 2013 with a package of tax increases and spending cuts that it said would guarantee the country could meet deficit-cutting targets agreed to with the rest of the euro zone. As promised, here is an in depth look at what it all means.
Because the Prime Minister Mariano Rajoy’s Popular Party controls Parliament, the budget is expected to be adopted within the next few weeks. But with current austerity measures already prompting street demonstrations amid high unemployment and a recession, there is little likelihood that the new budget will do anything to calm a restive public.
The 2013 budget plan is meant to help carry out a sweeping long-term austerity package outlined by Rajoy in July, which is aimed at reducing the central government’s budget deficit by 65 billion euros over two and a half years.
The plan involves an average cut of almost 9 per cent in the spending of each government ministry next year. The salaries of civil servants will be frozen for a third consecutive year.
In a specific gesture toward older people and one made to maintain one of the PM’s pledges, the 2013 budget includes a 1.0 per cent increase in pension payments. Several economists, however, have suggested thatMadridwould eventually need to cut pension payments to stick to its budgetary targets.
Car owners of vehicles which are twelve years old can get a 2,000 euro grant for the purchase of another vehicle. In the case of commercial vehicles any over 10 years old will be accepted.
The plan started on October 1st and will continue toMarch 31st, 2013. The new car cannot cost more than 25,000 euros before IVA/VAT.
The budget also contains 43 new laws which will allow it to carry out its programme of reforms. It will centre on competition, unity in the market, and control of the deficit. This is the plan designed to comply with theBrusselsrecommendations.
Also as expected, the new measures would include removing a tax break for home purchases. In a surprise move, the budget proposal calls for raising the tax on lottery winnings to 20 per cent for winnings over 2,500, though it is not a move that would affect many people in a significant way. In total, the government said the tax measures would increase revenue by 4.4 billion euros next year.
Cristóbal Montoro, the budget minister, said the new budget would “prolong our effort to clean up public finances.” He added, “We are making an effort that is shared among many citizens and this is the way, even if it is not short, to get out of this crisis and erase the doubts overSpain”.
Mr. Montoro said the 2013 budget guaranteed thatSpainwould meet a pledge to the rest of the euro zone to cut its deficit to 4.5 per cent of gross domestic product next year, from a target of 6.3 per cent this year.
Trying to keep that pledge toEuropeamid a deepening recession, however, has already led Mr. Rajoy to backtrack on some campaign promises, including an increase in the value-added tax to 21 per cent from 18 per cent that went into effect on September 1st. That move helped spur the street protests against the government in recent weeks.
Keeping to the fiscal discipline demanded by other euro zone leaders could prove crucial to the Rajoy government, if it eventually wants to tap the new bond-buying program the European Central Bank announced this month. That program is meant to help reduce the borrowing costs of beleaguered euro zone members likeSpain: if the governments choose to ask for the help.
While that would help easeSpain’s debt financing problems, Rajoy is concerned that the aid would be accompanied by demands for more austerity measures.
Luis de Guindos, the economy minister, said that the government was still analysing the programme and noted thatSpainhad managed so far to continue to finance itself on the debt markets.
ButSpainfaces debt refinancing needs of 38.6 billion euros next year, according to the draft budget. That is almost 10 billion euros more than what was budgeted for 2012, underscoring the extent to whichMadridhas struggled to contain its borrowing costs.
PM Rajoy has ordered regional governments to cut their deficits to 1.5 per cent ofGDPthis year and 0.7 per cent next year. ButSpain’s 17 regions are not only struggling to cut their budget deficits but are also crippled by mountains of debt.
Also on the cards is the creation of a supervisory agency to help ensure budgetary compliance by public administrations, as well as a further drive to streamline regional and local bodies in order to avoid expensive duplications.
“We have made important efforts to improve central administration, but we need to extend those to regions and municipalities,” Guindos said.
Whatever Rajoy’s latest measures, “political tension between central government and the regions could also increase the likelihood of additional fiscal slippage because the chances that the government will use its powers to impose fiscal discipline are slimmer,” analysts at Barclays warned in a report issued before the budget presentation.
Montoro suggested that such doubts were unfounded and insisted that tax revenues were in line with what the government anticipated.
Rajoy’s government expectsSpain’s economy to contract 1.5 per cent this year and 0.5 per cent next year. But Montoro forecast that exports would pick up and unemployment would peak, so that 2013 should be “the last year of recession for our country.”
Finally, a round up of some of the major cuts.
The money available for the dependency help program destined for the regional communities will see a 200 million reduction in the budget and fall to 1.087 billion euros. The Development Ministry will reduce investment in infrastructures by 22%. The cabinet is also to announce new taxes, such as new green taxes.
Continuing Education, Culture and Sports funding down17.2%, Agriculture, Food and Environment down 25%, and Finance and Public Administration down 9.5%.
Defence cuts at 6%, Justice 4.2% and Interior 6%. The only departments that are increased are Economics and Competitiveness 4% and Presidential 0.6%.
EU response to budget
EU Economic and Monetary Affairs Commissioner Olli Rehn has said that his office will give a formal reply to the Spanish budget plans in November, but praised the reforms laid out by prime Minister Rajoy and de Guindos and said he was confident the pair would take the necessary steps to restore health to Europe’s fourth-largest economy.
Immediately after the release of the budget on October 27th, Olli Rehn, made the following statement:
“The comprehensive reform plan announced today by the Spanish authorities is a major step to broaden and deepen structural reforms, building on important achievements made already. The reform plan includes concrete, ambitious and well-focused measures and establishes clear deadlines in many areas.
“This new structural reform plan responds to the country specific recommendations issued toSpainunder the European semester and goes even beyond them in some areas. The reforms are clearly targeted at some of the most pressing policy challenges. “Further enhancing the flexibility of product and labour markets will indeed be critical to boost growth and employment and to support fiscal consolidation.
“I particularly welcome the ambitious plans to establish an independent Fiscal Council, to further liberalise professional services, and to effectively reduce the fragmentation of the internal market inSpain. Labour market measures complement past reforms of collective bargaining and employment protection. The planned reform of the vocational education system is particularly pertinent.
“Spainis facing important challenges to correct very sizable macroeconomic imbalances which require a comprehensive policy response. The measures announced today are a further important step towards addressing these challenges”
More... (http://www.canarianweekly.com/budget-store/)
Because the Prime Minister Mariano Rajoy’s Popular Party controls Parliament, the budget is expected to be adopted within the next few weeks. But with current austerity measures already prompting street demonstrations amid high unemployment and a recession, there is little likelihood that the new budget will do anything to calm a restive public.
The 2013 budget plan is meant to help carry out a sweeping long-term austerity package outlined by Rajoy in July, which is aimed at reducing the central government’s budget deficit by 65 billion euros over two and a half years.
The plan involves an average cut of almost 9 per cent in the spending of each government ministry next year. The salaries of civil servants will be frozen for a third consecutive year.
In a specific gesture toward older people and one made to maintain one of the PM’s pledges, the 2013 budget includes a 1.0 per cent increase in pension payments. Several economists, however, have suggested thatMadridwould eventually need to cut pension payments to stick to its budgetary targets.
Car owners of vehicles which are twelve years old can get a 2,000 euro grant for the purchase of another vehicle. In the case of commercial vehicles any over 10 years old will be accepted.
The plan started on October 1st and will continue toMarch 31st, 2013. The new car cannot cost more than 25,000 euros before IVA/VAT.
The budget also contains 43 new laws which will allow it to carry out its programme of reforms. It will centre on competition, unity in the market, and control of the deficit. This is the plan designed to comply with theBrusselsrecommendations.
Also as expected, the new measures would include removing a tax break for home purchases. In a surprise move, the budget proposal calls for raising the tax on lottery winnings to 20 per cent for winnings over 2,500, though it is not a move that would affect many people in a significant way. In total, the government said the tax measures would increase revenue by 4.4 billion euros next year.
Cristóbal Montoro, the budget minister, said the new budget would “prolong our effort to clean up public finances.” He added, “We are making an effort that is shared among many citizens and this is the way, even if it is not short, to get out of this crisis and erase the doubts overSpain”.
Mr. Montoro said the 2013 budget guaranteed thatSpainwould meet a pledge to the rest of the euro zone to cut its deficit to 4.5 per cent of gross domestic product next year, from a target of 6.3 per cent this year.
Trying to keep that pledge toEuropeamid a deepening recession, however, has already led Mr. Rajoy to backtrack on some campaign promises, including an increase in the value-added tax to 21 per cent from 18 per cent that went into effect on September 1st. That move helped spur the street protests against the government in recent weeks.
Keeping to the fiscal discipline demanded by other euro zone leaders could prove crucial to the Rajoy government, if it eventually wants to tap the new bond-buying program the European Central Bank announced this month. That program is meant to help reduce the borrowing costs of beleaguered euro zone members likeSpain: if the governments choose to ask for the help.
While that would help easeSpain’s debt financing problems, Rajoy is concerned that the aid would be accompanied by demands for more austerity measures.
Luis de Guindos, the economy minister, said that the government was still analysing the programme and noted thatSpainhad managed so far to continue to finance itself on the debt markets.
ButSpainfaces debt refinancing needs of 38.6 billion euros next year, according to the draft budget. That is almost 10 billion euros more than what was budgeted for 2012, underscoring the extent to whichMadridhas struggled to contain its borrowing costs.
PM Rajoy has ordered regional governments to cut their deficits to 1.5 per cent ofGDPthis year and 0.7 per cent next year. ButSpain’s 17 regions are not only struggling to cut their budget deficits but are also crippled by mountains of debt.
Also on the cards is the creation of a supervisory agency to help ensure budgetary compliance by public administrations, as well as a further drive to streamline regional and local bodies in order to avoid expensive duplications.
“We have made important efforts to improve central administration, but we need to extend those to regions and municipalities,” Guindos said.
Whatever Rajoy’s latest measures, “political tension between central government and the regions could also increase the likelihood of additional fiscal slippage because the chances that the government will use its powers to impose fiscal discipline are slimmer,” analysts at Barclays warned in a report issued before the budget presentation.
Montoro suggested that such doubts were unfounded and insisted that tax revenues were in line with what the government anticipated.
Rajoy’s government expectsSpain’s economy to contract 1.5 per cent this year and 0.5 per cent next year. But Montoro forecast that exports would pick up and unemployment would peak, so that 2013 should be “the last year of recession for our country.”
Finally, a round up of some of the major cuts.
The money available for the dependency help program destined for the regional communities will see a 200 million reduction in the budget and fall to 1.087 billion euros. The Development Ministry will reduce investment in infrastructures by 22%. The cabinet is also to announce new taxes, such as new green taxes.
Continuing Education, Culture and Sports funding down17.2%, Agriculture, Food and Environment down 25%, and Finance and Public Administration down 9.5%.
Defence cuts at 6%, Justice 4.2% and Interior 6%. The only departments that are increased are Economics and Competitiveness 4% and Presidential 0.6%.
EU response to budget
EU Economic and Monetary Affairs Commissioner Olli Rehn has said that his office will give a formal reply to the Spanish budget plans in November, but praised the reforms laid out by prime Minister Rajoy and de Guindos and said he was confident the pair would take the necessary steps to restore health to Europe’s fourth-largest economy.
Immediately after the release of the budget on October 27th, Olli Rehn, made the following statement:
“The comprehensive reform plan announced today by the Spanish authorities is a major step to broaden and deepen structural reforms, building on important achievements made already. The reform plan includes concrete, ambitious and well-focused measures and establishes clear deadlines in many areas.
“This new structural reform plan responds to the country specific recommendations issued toSpainunder the European semester and goes even beyond them in some areas. The reforms are clearly targeted at some of the most pressing policy challenges. “Further enhancing the flexibility of product and labour markets will indeed be critical to boost growth and employment and to support fiscal consolidation.
“I particularly welcome the ambitious plans to establish an independent Fiscal Council, to further liberalise professional services, and to effectively reduce the fragmentation of the internal market inSpain. Labour market measures complement past reforms of collective bargaining and employment protection. The planned reform of the vocational education system is particularly pertinent.
“Spainis facing important challenges to correct very sizable macroeconomic imbalances which require a comprehensive policy response. The measures announced today are a further important step towards addressing these challenges”
More... (http://www.canarianweekly.com/budget-store/)