20 Dec 2011

Spain's new leader pledges deep crisis cuts

7:57 am on 20 December 2011

Spain's incoming Prime Minister has promised deep cuts in public administration spending to meet tough deficit targets while offering tax breaks for companies.

In his first speech to the country's new Parliament, Mariano Rajoy said budget stability, a costly fresh round of bank consolidations and reforms to Spain's economy, such as its rigid labour law, would be his central objectives.

The eurozone's fourth-largest economy is at the centre of the bloc's debt crisis and investors have driven up Spain's borrowing costs to near-unsustainable levels

But the Prime Minister's promises of more austerity have boosted confidence and debt yields have fallen.

Mr Rajoy said Spain was confronting enormous difficulties and must make very demanding efforts to reduce its debts.

He said he would implement a hiring freeze on most of the public sector and announce detailed spending cuts on 30 December.

Outlining some immediate tax benefits for companies in order to boost employment and demand, he said small companies and the self-employed will not have to pay taxes before clients have paid them, as they currently do.

Mr Rajoy said that if Spain met its public deficit goal of 6% of gross domestic product in 2011 - which most economists say is unlikely - the Treasury would need to find 16.5 billion euros in savings next year to meet the next target.

However, in a later questions and answer session in the lower house, Mr Rajoy said he would try to avoid raising taxes to meet the target although meeting the goal was a priority .

Mr Rajoy's centre-right People's Party was elected by a landslide in November.

The Prime Minister will be sworn in by King Juan Carlos on Wednesday and will name his cabinet.