The budget is based on a forecast that the Spanish economy will grow 0.7 percent next year, up from the government’s previous forecast of 0.5 percent. Gross domestic product is expected to contract 1.3 percent this year.
Calling it a “budget of economic recovery,” Cristóbal Montoro, the budget minister, forecast that the proposal would “open the door to job creation in our country” since it lacked the tax increases and heavy spending cuts of recent years.
The government also forecast that the unemployment rate would fall to 25.9 percent in 2014, down from the record 27 percent that it reached in the first quarter of this year.
As part of its belt-tightening, the government has extended a salary freeze for civil servants for a fourth consecutive year. And on Friday, it approved changes to the pension system intended to save about 800 million euros ($1.08 billion) next year.
Having requested a bailout for its suffering banks in June of last year, the Spanish government has been under pressure to stick to its budgetary commitments, even as it faced frequent street protests against a series of spending cuts and tax increases.
Given the depth of Spain’s recession, the European Commission agreed last May to give Madrid more time to reach its budgetary targets. The Spanish deficit is expected to fall to 6.5 percent of gross domestic product this year. That would be down from a revised deficit of 6.8 percent of G.D.P. last year, which was 0.2 percentage points less than what Madrid had initially estimated. For 2014, the target is for a deficit of 5.8 percent of G.D.P.
One of the most significant turnarounds for Spain has been the recent fall in its borrowing costs as investors shifted the spotlight to Italy’s political fragility and the perceived risk that Italy poses for the euro zone. The interest rate premium demanded by investors for buying Spanish government bonds rather than Germany’s benchmark bonds fell this month below that of Italy for the first time since March of last year.
Thanks to that improvement, Mr. Montoro said, the cost of financing the country’s debt should fall 5.2 percent next year, to 36.6 billion euros.
While Spain is emerging from a two-year recession, Prime Minister Mariano Rajoy and his ministers have recently cautioned that the country still faced a significant economic challenge, with continued weakness in consumer spending and a reluctance by banks to provide credit.
The 2014 budget and the proposed changes to the way pension payments are calculated will now need to go to Parliament for a vote, but that is expected to be a formality as Mr. Rajoy’s Popular Party holds an absolute majority.
Article source: http://www.nytimes.com/2013/09/28/business/international/spanish-budget-avoids-austerity-measures.html?partner=rss&emc=rss