Spain sticks to unpopular cutbacks in 2014 budget

Spain's government met on Friday to approve a 2014 budget that freezes the salaries of 2.6 million public sector workers for a fourth year running and offers no relief to pensioners.

Spain sticks to unpopular cutbacks in 2014 budget
An elderly woman holds a placard reading "We are all pensioners!!!" during a protest against government's austerity reforms and pension cuts in Madrid . Photo: Pedro Armestre/AFP

Despite his claims that the economy is slowly recovering, conservative Prime Minister Mariano Rajoy's latest spending plan was set to retain unpopular cutbacks that he says are vital to drag Spain out of a two-year recession and fix its public finances.

A Treasury statement late Thursday said the budget would "maintain" public sector workers' salaries — interpreted by unions and media as confirming that they would neither rise nor fall but be frozen for the fourth consecutive year.

The government was also set on Friday to approve a pension reform that will stop indexing payouts to inflation, which unions say will mean an effective loss of spending power for retired workers.

Rajoy had vowed to protect retirement pensions as one of the key pledges in his successful 2011 election campaign. His government says the reform, which links payments to life expectancy and economic cycles, will better guarantee purchasing power.

After plunging into crisis when a decade-long housing bubble burst in 2008, Spain pushed through painful spending cuts to bring down its soaring public deficit and get its accounts in order under pressure from the European Union.

The government announced in 2012 that it aimed for savings of 150 billion euros ($200 billion) by the end of 2014, mainly in health and education. The measures sparked angry street protests in a country where one in four people is out of work.

The rate of Spain's economic descent has eased over the last year, helped by a rise in exports and a boom in tourism as northern European sunseekers shun troubled rival destinations in the Middle East.

Spain emerged from recession in the third quarter, with an estimated growth of 0.1 to 0.2 percent, Rajoy said in an interview published in the Wall street Journal on Tuesday.

He later also raised the economic growth forecast for the eurozone's fourth-largest economy for 2014 to 0.7 percent from 0.5 percent.

'I am conscious we have demanded great effort'

But despite the improved economic outlook analysts said the government had to stick to its austere measures if it was to meet its goal of slashing its deficit to 6.5 percent of gross domestic product (GDP) this year and 5.8 percent next year.

The 2014 budget will likely increase the sales tax that is slapped on health services from 10 percent to 21 percent, a measure which is estimated to bring in one billion euros to state coffers, a report by Bankinter said.

Spain's 2.6 million public workers have had their salaries frozen each year since 2010, when their pay was cut by an average of 5.0 percent.

"I am conscious that we have demanded a great effort from public workers," Rajoy said in parliament.

While the government will this year reintroduce an annual Christmas bonus for public workers which was slashed in 2012 and keep it in 2014, Rajoy put off any pay raise for civil servants.

"As soon as we can, we will improve their situation," he said.

The government was to approve the long-awaited pension reform along with the draft budget at a weekly cabinet meeting.

The UGT, a major labour union which represents a wide range of public sector workers and pensioners, said the reform will cause pensioners to lose between 20 percent and 28 percent of their purchasing power over the next decade.

Spain's largest union, the CCOO, predicts the reform will cause pensioners' purchasing power to fall between 14.9 percent and 28.3 percent over the next 15 years.

"It's a useless and unwelcome reform," it said in a statement.

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