Spain will announce further austerity measures today aimed at fending off debt market attacks while avoiding drastic cuts which may damage the ruling Socialists' chances in November's general election.
The government aims to save around €5 billion with measures that include front-loading tax payments from large businesses and cutting drug costs for regional governments with a new bill on generic medicines.
This should shave the equivalent of half a percentage point of gross domestic product (GDP) from its public deficit, which it aims to cut to 6 per cent this year. The government has already cut the gap to 9.2 per cent of GDP in 2010 from 11.1 per cent in 2009.
The opposition People's Party, likely to take power in general elections in November, has called the changing of tax payments an accounting trick by forcing large companies to pay taxes due in 2012 before the end of 2011.
Analysts say hitting this year's deficit target will be hard for Spain given growth that barely hovers above zero, high debt-servicing costs and broader global growth concerns.
Spain's borrowing costs have come down since hitting euro-era highs in July thanks largely to bond-buying by the European Central Bank.
Prime minister Jose Luis Rodriguez Zapatero has brought forward general elections by several months to November 20th. His PSOE party is dragging in the polls, shunned by voters suffering the effects of last year's austerity drive which included wage cuts.
For this reason, analysts expect the government to announce savings plans that won't affect most voters while avoiding unpopular measures like tax hikes or cuts in health services which would damage its outcome at the polls.
Reuters
