Spain announces harshest budget reforms

Spain has announced its plan for drastic economic reform, and a tight 2013 budget, where cutting spending rather than lifting taxes will be the focus. The Spanish government is set to pass 43 new laws to reform the economy within the next six months.

The new budget entails 58% spending cuts and 42% increased taxes. Reuters quotes Spain's Deputy Prime Minister Soraya Saenz de Santamaria as saying Spain will set up an independent fiscal authority to help oversee its deficit cutting promises. Government ministry spending is going to be cut by 8.9%, or about €40bln, according to Luis De Guindos, Spain’s Finance Minister. This shouldn’t hurt “social spending”, with 64% of the total budget going on pensions, benefits, the Finance Minister added.Budget Minister Cristobal Montoro expects 2013 to be the last year of crisis, with negative GDP growth in the region of – 0.5%.Meanwhile, European leaders as well as the business community are speculating whether the reforms will result in a request for an international bailout. The final decision should depend on the results of the audit of Spanish banks, with the exact date of the report to become public expected to be announced on Friday. The Government earlier forecast the gap in Spanish banking would stand at about €60bln.Budget discussions took place at a time when Spain was overwhelmed with street protests and separation sentiment by the Catalan region, which escalated earlier on Wednesday.