1-Jan-2012 - Spain Expects Wider Deficit

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By DAVID ROMAN And JONATHAN HOUSE MADRID—Spain's new government Friday said the country will miss its budget-deficit target by a wide margin, NFL jerseys supply and announced spending cuts and tax increases valued at about €15 billion (19.4 billion) to stem the tide of red ink. One week after conservative Prime Minister Mariano Rajoy took his oath of office, his government said Spain's budget deficit will be about 8% of gross domestic product 2011, well above the 6% target the previous government of Socialist Prime Minister José Luis Rodríguez Zapatero had committed to with the European Union and financial markets. The overrun makes Spain the latest country on the euro zone's fiscally frail periphery to stumble in attempts to close a yawning budget gap. Portugal, Italy and Greece have all been forced to push through austerity measures in recent months. Madrid proposed about €8.9 billion in spending cuts for 2012 that ranged from trimming public-sector employment to curbing subsidies for political parties. It also went back on a campaign pledge of Mr. Rajoy's and approved tax increases valued at about €6 billion. The total budget adjustment represents about 1.5% of GDP. "We were not in favor of tax hikes," said government spokeswoman Soraya Saénz de Santamaría at a news conference. "They were forced by the size of the [budget] gap we encountered." Still, Spain's latest measures will likely be insufficient to slash the budget deficit from 8% of GDP in 2011 to the target 4.4% in 2012, a gap of about €36 billion. The government will present a new 2012 budget in March. Ms. Saénz de Santamaría hinted there is more austerity to come. "The government has started to take measures, this is the beginning of the beginning," she said. Speaking at the same news conference, Finance Minister Luis de Guindos said he hoped the government's swift action on the deficit and promised economic reforms will shore up confidence that will help fuel economic growth and boost tax revenue. Earlier this week, Mr. de Guindos said the Spanish economy will likely contract in the last quarter of 2011 and the first quarter of 2012 after nearly a year of timid economic growth. Mr. de Guindos said his ministry is currently preparing economic forecasts for 2012. He dismissed a recent estimate of a 2% contraction for the year as too pessimistic, and said the ministry's own forecast will be "very far from that." In terms of reforms, the government has promised to present in the first quarter of 2012 an overhaul of a rigid labor market that economists say is responsible for Spain's structurally high unemployment rate. It will also present in the first half of 2012 a plan to clean up a banking sector groaning NFL jerseys under the collapse of a decadelong housing boom. Opposition politicians and union leaders criticized the new measures. In a statement, the Comisiones Obreras union said austerity measures taken by the previous government had worsened the country's economic situation. "The results are clear: five million people unemployed, low growth, lower wage costs, lost social rights and an economy that is on the cusp of a new recession," the union said. Ms. Saénz de Santamaría cast the new measures in as politically favorable a light as possible, saying they wouldn't affect nike nfl jerseys the most vulnerable segments of society. "We must not ask for more sacrifices from those who cannot give more," she said. While the government will freeze new hires and wages in public administration, it will extend unemployment benefits and raise pensions in line with inflation. In terms of government departments, the Public Works ministry will see the largest budget cut, more than €1.6 billion. Likewise, the government said its tax increase is designed to be progressive, that is, to have a greater impact on high earners. It was partly for this reason, Budget Minister Cristóbal Montoro said, that the government decided on an income tax increase with a sliding scale, rather than a value-added tax that affects all consumers equally, regardless of their income levels. "It was meant to be fair," Mr. Montoro said. The government also will raise property taxes and eliminate a tax break on diesel fuel.

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