Spain's government unveiled Thursday a 2013 budget that tightens austerity even in the teeth of growing protests, easing the path to a widely expected sovereign bailout, AFP reports.
The 2013 budget rakes in 39 billion euros ($50 billion) in spending cuts and tax increases so as to curb the public deficit despite a recession, a jobless rate of nearly 25 percent and soaring debt repayments.
Only old-age pensioners were spared in the slew of cuts, aimed at ensuring Spain complies with its commitment to the European Union to get the public deficit under control.
"It is a budget for a period of crisis, but aimed at getting out of this crisis," Deputy Prime Minister Soraya Saenz de Santamaria told reporters after a cabinet meeting.
Defying market scepticism, Madrid vowed to slash the deficit from a blowout figure of 8.9 percent of economic output last year to 6.3 percent this year, 4.5 percent in 2013 and 2.8 percent in 2014.
"It is a major commitment to reducing the public deficit but also oriented towards economic growth and creating employment" Budget Minister Cristobal Montoro told journalists.
The focus is on spending cuts, the government said.
Expenditure by ministries is lowered by 8.9 percent, public sector salaries are frozen for the third year running and the regions, which pay for health and education, must find seven billion euros in savings.
But retirement pensions are expected to go up by one percent, sticking to a key pre-election promise of Prime Minister Mariano Rajoy's conservative government.
One other big item going up next year, however, is the cost of servicing Spain's public debt: interest payments are forecast to leap 33.8 percent to 38.6 billion euros.
With nearly 25 percent of the workforce jobless, social security spending accounts for nearly two thirds of the nation's expenditure.
In addition to boosting sales and income taxes, the government agreed to tax lottery winnings above 2,500 euros at 20 percent, extend wealth taxes and curb corporate tax breaks for depreciation.
Structural reforms in the budget, agreed with Brussels, included cutting red tape and fresh moves to liberalise markets such as telecommunications and energy.
To reassure markets of Spain's determination to meet its deficit-cutting targets, the government announced it would create an independent fiscal authority to check any budget slippages.
-- Brussels and Catalonia weigh in --
The formulation of the 2013 budget, to be followed by the release of an audit of Spain's sick banking system on Friday, is seen on the markets as one of the final acts before a sovereign bailout.
The eurozone has already agreed to extend a rescue loan of up to 100 billion euros for a banking system bogged down by bad loans that piled up after a 2008 property crash.
If Spain formally requests a broader sovereign bailout, it would become eligible to benefit from a bond-buying programme for troubled states, as outlined by the European Central Bank on September 6.
That would curb Spain's borrowing costs, but to qualify Madrid would have to apply for help from the European Stability Mechanism -- and submit to its conditions.
Importantly, Brussels welcomed the budget.
The European Union's economics chief, Olli Rehn, said it was "a major step to broaden and deepen structural reforms" and praised its "concrete, ambitious and well-focused measures".
US stock markets scored solid gains Thursday after Spain's announcement -- and amid speculation of additional stimulus measures from China.
The Dow Jones Industrial Average was up 73.03 points (0.54 percent) at 13,486.54 in closing trade.
On Friday, Tokyo stocks followed, opening 0.41 percent higher.
But Spain's problems appeared to be multiplying.
Investors are deeply concerned about political tensions between Madrid and the northeastern Spanish region of Catalonia, which has called snap elections on November 25 in a drive for more independence.
The debt-struck region's parliament Thursday voted for referendum on Catalonia's "collective future", but Madrid has vowed to thwart any attempt to hold a poll on Catalan independence.
The regions' debt situation is perilous, forcing many to apply for help from an 18-billion-euro central government liquidity fund.
Castilla-La Mancha asked for 848 million euros on Thursday, adding to earlier requests from Catalonia, Valencia, Andalusia and Murcia that already amount to a total of about 15 billion euros.
If Spain has to foot the bill for restructuring of its banks, its overall sovereign debt will rise and its deficit-cutting task will become even more urgent.
Thousands of protestors rallied near the Spanish parliament for a second straight night over the austerity measures Wednesday, and there were more protests Thursday over the impact of education cuts.