MercoPress. South Atlantic News Agency

Rajoy raises VAT to 21% and drastically cuts benefits and other perks

“Measures are not pleasant but are necessary”, said the Spanish PM

Prime Minister Mariano Rajoy announced a swathe of new taxes and spending cuts designed to slash 65 billion Euros from the budget deficit by 2014 as recession-plagued Spain struggles to meet tough targets agreed with Europe.

Rajoy, from the conservative People's Party, proposed a 3-point hike in the main rate of Value Added Tax on goods and services to 21%, and outlined cuts in unemployment benefit and civil service pay and perks in a parliamentary speech interrupted by jeers and boos from the opposition.

“These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billions of euros,” Rajoy told parliament.

He also announced new indirect taxes on energy, plans to privatize ports, airports and rail assets, and a reversal of property tax breaks that his party had restored last December.

However, he did not touch pensions - keeping one election promise - and said the tax burden was being shifted from direct taxes on labour and income to taxation on consumption.

Rajoy announced reforms to city hall governments, shutdowns of public companies, reduced benefits for civil servants, budget cuts for political parties and labour unions.

The PM who had pledged in his election campaign last year not to raise VAT, said he now had no choice. The main rate will rise to 21% from 18% and the reduced rate to 10 from 8% in a move that could further depress consumer spending.

“We are living in a crucial moment that will determine the future of our families, our youth, our social welfare and all our hopes,” he said. ”That is the reality. We have to get out of this mess and we have to do it as soon as possible”.