Spain budget: Cuts to total 27bn euros this year

Spain is cutting 27bn euros ($36bn; £22.5bn) from its budget this year as part of one of the toughest austerity drives in its history.

Changes will include freezing public sector workers’ salaries and reducing departmental budgets by 16.9%.

The government says it will raise 12.3bn euros this year, aided by an increase in tax for large companies.

Deputy Prime Minister Soraya Saenz de Santamaria said the nation was in an “extreme situation”.

“Our top priority is to clean up public accounts,” she said.

“This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs.”

But economists are questioning whether the cuts will be enough to satisfy Spain’s European partners.

‘Insufficient’ cuts

Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain’s deficit from 8.5% to 5.3% of GDP in 2012.

Javier Diaz Gimenez, professor of economics at IESE Business School in Madrid, said: “This [budget] seems to be non-credible.

“They will not be making the 5.3% target agreed with Brussels, because the cuts are insufficient given the growth forecast,” he told BBC News.

This could mean further cuts are needed before long.

“I suspect that the government could be forced to implement further austerity measures later this year, with lingering economic downturn set to place additional strains on an already perilous budget deficit reduction plan,” said Raj Badiani, an economist at IHS Global Insight.

The main risk is that the government’s tax revenue projections for 2012 look too optimistic,” he said.

There are concerns, however, that even the latest spending cuts could further damage the chances of getting the Spanish economy growing again. It is in recession and is expected to shrink by 1.7% this year.

Soraya Saenz de Santamaria said this would not happen.

“Our obligation towards Spanish people and the rest of the EU citizens is to get public accounts into shape,” she said.

“Not at any cost, but with measures that support those citizens who need it the most and not paralysing a possible recovery or job creation.”

Budgets slashed

Under the 2012 budget the unemployed will see their benefits maintained and pensions will continue to rise.

Consumers have also been spared some pain as VAT will remain at its current level.