Cabinet approves biggest austerity drive in democratic history

Public servants stormed the streets again on Friday to protest the ¡°stickup¡± and the ¡°aggression¡± perpetrated by the government of Mariano Rajoy, which on Friday approved new cost-cutting measures ¡ª including the elimination of civil servants¡¯ extra Christmas payment and some of the ¡°personal days¡± they can take ¡ª as part of a 65-billion-euro austerity drive.

The protestors blocked several major arteries in Madrid, and one of the unions, CSI-F, called a public sector strike for September. ¡°We will not remain here with our arms folded while they take away our rights,¡± said one CSI-F member.

The protests came on the same week that miners from northern Spain marched into Madrid to object major subsidy cuts that could mean the closure of mines.

But far from backing out of cost-cutting mode, the conservative government of the Popular Party (PP) on Friday approved the greatest belt-tightening initiative in the history of democratic Spain. The Cabinet approved measures that include a rise in value-added tax (VAT) of up to 13 percentage points on some consumer goods and services; complete flexibility for store opening hours; smaller unemployment checks from the seventh month; and the liberalization of air and railroad transportation.

¡°Spain is going through one of the most dramatic moments in its history,¡± said Deputy Prime Minister Soraya S¨¢enz de Santamar¨ªa. ¡°We are forced to do this in the best possible way, and we will try to do it with the utmost justice and equity [...]. These are the times when a government has to act with rigor and realism.¡±

The deputy blamed the ¡°difficult¡± measures on the fact that the previous Socialist government left a deficit three points above its public forecast (8.9 percent versus 6.5 percent).

The announcement comes shortly after the European Union granted Spain an extra year to bring its deficit back within the required three-percent-of-GDP ceiling. This reprieve, coupled with a 100-billion-euro loan for the banking sector, is forcing the PP to take further steps towards deficit reduction, including measures it abhorred while in the opposition, such as raising taxes.

Starting on September 1, general VAT will increase from 18 percent to 21 percent; even more significantly, several goods and services that are currently taxed at the reduced VAT of eight percent will shoot up to 21 percent, including movie tickets and contact lenses. Otherwise, the reduced rate rises to 10 percent, while the super-reduced rate of four percent for medicines, printed matter and staple foods remains unchanged. The tax breaks for home purchases are also being axed.