"It's the only thing we can do," says Government

Mariano Rajoy

MADRID Those are the words Mariano Rajoy, President of the Spanish Government, repeated several times in is speech on the new measures he is taking against the "very delicate situation" (his words) the country is in. Below we offer a listing of some of the measures, cutbacks and tax reforms he is proposing, but perhaps the main one is a raise of three percentage points in VAT, which goes up from 18% to 21% in the general rate and two points for the reduced rate (which includes tourism related items but not food, which remains the same at 4%) from 8% to 10% and will cost the 'average' (have you ever met one?) €450 per year extra. The plan he announced yesterday morning in a two hour speech to a plenary session of the Chamber of Deputies and is expected to be largely  approved by the Council of Ministers on Friday, is one of the hardest ever applied in this country. The plan is designed to raise income and lower costs, which, together with past and future measures, to represent a total of €65 billion, or 6.5% of GDP, in the space of two and a half years. These new measures, the fourth such package in as many years but more severe thahn any before, were announced at the same time as miners from Asturias, many of whom walked to Madrid over more than 400 kilometers, were protesting loudly outside. The measures include:>>>

>Public employees

These(including educators, doctors & nurses, police men & women, firemen, etc. etc.) will not receive their Christmas bonus in 2012 but will recover the money as a pension fund in 2015.

Free days to be reduced in number.

Union representatives will be free for union duties strictly according to law. At present they are fully available at all times.

Public employees will obtain increased freedom of movement within their levels.

>IVA/VAT

Rises by 3%, from 18% to 21% in general; up 2%, from 8% to 10% at the reduced level (e.g. tourism related business) and primary need items remains at its present 4%.

>Environment

Environmental 'tax' to go up, details to become available later. "Polluter pays" is the criterium.

>Tobacco

Tax on tobacco to go up; details and schedule later.

>Changes to system of partial Company Tax payments (pagos fraccionados).

>Unemployment benefits

To be reduced as from sixth month of unemployment, from the present 60% applied to the calculations for this benefit to 50%. Benefit will continue to be paid for the present 24 months.

At present unempoyment benefit is calculated at 70% of last salary, and 60% of same, after six months. In other words, the newly unemployed will only get 50% of their last salary after the first six months.

>Pensions

The Government will present a 'projected' law to reform the current pensions system that takes the sustainability factor into account and deal with early retirement, as is required by Brussels.

Among other measures to be applied to pensions, is putting back retirement age from 65 to 67. This is supposed to come into effect progressively starting on January 1, 2013 but not fully until 2027. However, Rajoy's announcement may well bring the law into effect sooner.

>Administration cutbacks

Reduction of 30% in the number of local councillors, according to population levels.

Closer watch on local accounts

Public information on salaries of mayors and councillors, which will be capped according to the size and population of the municipality.

The above to be applied 'immediately'.

Central Government ministerial monies to be capped to a total of €600 million.

Budget credit for such things as grants, current costs and transferences to be reduced well before the end of the year.