Spanish 2013 budget plan has been released on Thursday with remarks on cutting spending rather than hiking taxes, said Spain deputy Soraya Sáenz de Santamaría, in a press conference.
The deputy PM announced that Spain seeks to control budget deficit and that reforms are aimed to boost competitiveness and to overcome the crisis.
Public spending will be cut by 58% in 2013. Pensions, scholarships and interest costs on the foreign debt will be the only items to increase. That way, the social spending will represent 63.5% of budget.
Rajoy's government announced it will tap EUR 3 billion from pension reserve fund "to cover some treasury needs". Santamaría also announced that the government will implement a plan of 43 new laws to bolster economy called Spanish Strategy of Economic Policy (Estrategia Española de Política Económica).
Spanish government will create several organisms in order to supervise different sectors. Spain will create agency to monitor regional budget targets and an organism designed to unlock the conflicts that may occur between companies and workers. The government also announced the liberalization of energy, services and telecom sector.
Spanish Budget Min, Cristóbal Montoro, stated that the government anticipates the GDP will contract 1.5% in 2012, while recession will extend into 2013 with a 0.5% decline. However, he expects that the 6.3% deficit/GDP ratio to be met in 2012, as well as the ratio of 4.5% for 2013. Montoro also said the tax revenue projections for this year will be fully met. For 2013, he forecasts revenue to growth by 3.8%.
European Commissioner for Economic and Monetary Affairs Olli Rehn said that the Spanish structural reform plan is a "major step". Rehn has affirmed that the plan is "well focused and in certain areas it goes even beyond what the European Commission recommended," agreeing in this way with minister De Guindos who said that "reform plan go beyond EU recommendations."
"The reforms are clearly targeted at some of the most pressing policy challenges. Further enhancing the flexibility of product and labour markets will indeed be critical to boost growth and employment and to support fiscal consolidation," Rehn Added.
Market has reacted well to the budget and risk have returned to the board. Wall Street is rallying on Thursday and European indexes turned back some initial losses. Euro is trading higher against the Greenback at 1.2920 after reaching 2-week lows at 1.2828 just at the press release time.