Ministry budgets were slashed by 8.9% for next year and public sector wages frozen for a third year as prime minister Mariano Rajoy battles to trim one of the eurozone’s biggest deficits while unemployment benefit costs rise.
His deputy, Soraya Saenz de Santamaria, described it “as a crisis budget aimed at emerging from the crisis”.
Beset by anti-austerity protests and threats of secession, Rajoy is resisting market and diplomatic pressure to apply for a rescue. Partly he is concerned for national sovereignty but also EU paymaster Germany insists Spain does not need help.
Next year central government spending will shrink 7.3% while revenue will rise 4%, thanks to eliminating some corporate tax benefits, a lottery winnings tax and a 15% leap in Vat take according to the budget, which goes to parliament tomorrow.
The country’s 17 autonomous regions will present their budgets later in the year.
Spain, the eurozone’s fourth largest economy, is now at the centre of the euro debt crisis and faces internal instability.
Catalonia yesterday voted for a referendum on self-determination but the Spanish government warned it would have it stopped by the country’s top court.
The Catalonian parliament voted to hold the referendum after regional elections on Nov 25.
Catalonia president Artur Mas called early elections and proposed the referendum after Spain recently rejected a demand to grant the region special fiscal powers.
Catalonia is Spain’s most economically powerful region, but also the most indebted.
Pensions, earmarked by the European Commission as a key area for reform, will rise by 1% next year but it is unclear if they will include an inflation catch-up of 3%.
In a sign of how tight the budget is the government said it would tap €3bn from social security reserves to pay pensions in 2012.