Spain will not abandon its 2012 public deficit target of 5.3% of gross domestic product, Prime Minister Mariano Rajoy said today.
"Reducing the public deficit to 5.3% this year is absolutely indispensable, a goal which we will not renounce," he said.
The cabinet on Friday approved the 2012 budget which includes €27 billion worth of spending cuts and tax hikes.
This makes it the toughest spending plan since Spain 1975.
Government ministries will see their budgets slashed by an average of around 17% according to the draft budget, which also raises taxes on tobacco sales and closes tax loopholes and rebates for large companies.
Public workers will have their wages frozen, but pensions and jobless benefits were spared amid rising public anger at the dire economic situation where unemployment has soared to over 23%.
Spain - which overshot its public deficit target last year - is racing to slash it to reassure markets that it will not follow Greece, Ireland and Portugal in requesting an international bail-out.
The country posted a public deficit - the broad shortfall between spending and revenues - of 8.51% of gross domestic product in 2011, far above the target for the year of 6%.
The European Union has agreed to let Spain aim for a public deficit equal to 5.3% of gross domestic output this year, a less-demanding goal than the original 4.4% agreed by the previous Socialist government with Brussels.
"Spain is going to be in the place that it deserves, it is going to once again be a country that meets its targets," said Rajoy, in power since December following a landslide general election win.
"The task we have before us is gigantic and the goal is to create jobs. But we know what we are doing. I am not in a position to give the Spanish people good news but I will be. We are sowing the seeds of a recovery," he added.
The latest austerity measures come on top of €8.9 billion in spending cuts and €6.3 billion in tax increases already announced this year. But meeting the deficit target is complicated by the fact that Spain is heading back into recession, with the government predicting the economy will contract by 1.7% this year.
