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Spain announces sweeping spending cuts, tax increases

(Xinhua)

09:30, December 31, 2011

MADRID, Dec. 30 (Xinhua) -- Spain's newly-elected government on Friday announced a sweeping package of cost cutting measures and tax increases in a fresh drive to bring the country's public finances back to order.

Deputy Prime Minister Soraya Saenz de Santamaria, Economy Minister, Treasury Minister Cristobal Montoro and Employment Minister Fatima Banez announced in a joint press conference Friday afternoon that the government would freeze recruitment of civil servants during 2012 with no replacements for anyone leaving their positions, in addition to rises in the income tax.

Saenz de Santamaria began the conference by announcing that the incoming government had found that Spain's deficit was higher than previously believed.

She said public deficit would amount to around 8 percent of Spain's gross domestic production (GDP), rather than the previously expected 6 percent, meaning that special measures needed to be introduced.

She added that the government would cut public spending by 8.9 billion euros (about 11.5 billion U.S. dollars) in 2012 for all ministries under the austerity package.

Civil servants will see their pay frozen for another year in 2012 and their working hours increased from 35 to 37.5 hours per week.

At the same time, the government's administrative structure will also be reduced by 20 percent, a measure that would hit middle management. Grants to political parties and unions will also be cut.

The new government, led by Popular Party's Mariano Rajoy, had previously confirmed there would be no increase in minimum monthly wages for workers in the private sector, despite an inflation rate of 2.4 percent by the end of 2011.

Saenz de Santamaria said the payment of 400 euros (about 518 dollars) a month to the country's long-term unemployed population would be extended for a further six months beyond February, when it was originally due to expire.

Meanwhile, Treasury Minister Montoro detailed income tax increases, saying the measure would be temporary for 2012 and 2013 and that they would be "progressive and qualitative."

The treasury minister said the tax hike would raise 6 billion euros (about 7.8 billion dollars).

However, Rajoy's government will fulfill their promise to increase pensions, but the 1-percent rise announced this Friday is well below the rate of inflation.

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