Brussels oversees Spain's deficit cuts (2)

08:54, May 17, 2010      

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Similarly, Zapatero announced a freeze in pension increases by 2011, except for non-taxable and minimum pensions. In total, more than six million pensioners will see their incomes shrink, putting an end to 25 years of steady pension increases relative to annual inflation rates, guaranteed by law. On the other hand, the Executive also intends to reduce pharmaceutical costs by achieving a more efficient use of medicines.

Another initiative announced by the socialist leader was the elimination from 2011 of the 2,500 euro (3090 dollars) birth scheme, also known as "the baby cheque". The end of this scheme, initially designed to lift birth rates, comes at a time when an aging Spanish population poses a serious risk to the sustainability of the social security system, which has forced the government to suggest an increase in the retirement age from 65 to 67 years.

Investment in public works, such as a high-speed railway network, will also suffer from the government's budget slash. These projects will be reduced by 6.04 billion euros (7.47 billion dollars) between 2010 and 2011. Development aid will also be reduced by a further 600 million euros (742 million dollars) in the same period. The president also asked regional and local governments to accommodate cuts totalling an additional 1.2 billion euros (1.48 billion dollars) in their budgets.

Zapatero said the measures were "indispensable" and designed to be "as equitable as possible" in order to meet the goal of reducing the deficit to 3 percent of GDP — the limit set by the EU's Stability and Growth Pact— by 2013. He also called for a national effort to see this task through.

The government does not rule out other austerity measures nor a possible tax increase on higher incomes. According to Vice President Maria Teresa Fernandez de la Vega, "people with higher incomes are the ones who should contribute more".

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