Spain’s Prime Minister Mariano Rajoy, who has been criticized for not appearing more often in parliament, made an exception on Wednesday in order to present a second package of austerity measures to the Congress of Deputies. 

Increased value-added taxes, reduced unemployment benefits and elimination of some privileges for public sector employees are among the new measures, which aim at reducing the deficit and coming to terms with the deep economic crisis. 

Regular VAT will be increased from 18 to 21 percent, Rajoy said, taking effect already on Friday, while reduced VAT will be increased from 8 to 10 percent, in order to approach the levels in other European countries. The lowest VAT at 4 percent will not change. Also, tax reductions on real estate investments will disappear in 2013.

Changes for public sector employees

For employees and executives in the public sector, Rajoy announded that the government will remove several privileges, including an annual Christmas bonus. It will affect employees in the municipal, regional and national administrations. There will also be increased flexibility in the employment conditions.

Rajoy also said the number of councilors will be reduced by 30 percent and there will be increased budget control over municipal administrations. The salaries of municipal councilors and mayors will become more homogenous and their salaries will be made public.

Political parties will also be affected by the budget cuts, as their subsidies will be reduced by 20 percent. The ministries will see their budgets cut by a total of €600m, although it was not specified how this will affect specific ministries.

Reduced unemployment benefits

Unemployment benefits will be reduced after the first six months, as the amount on which the benefit is calculated will be reduced from 60 to 50 percent. The aim is to “encourage active job searching,” Rajoy said.

This means that the limit of two years to receive unemployment aid will not change, nor the amount of the benefit during the first six months.

Rajoy also said his government will continue elaborating a new law to reform the retirement system, which will include changes for pre-retirement.

In total, the government estimates that with these measures it will save €65bn until the end of 2014, when the budget deficit should have dropped to 2.8 percent, according to the agreement with Brussels this week.

This article was translated and edited by Stina Lunden.