Austerity Measures

Agreement between Spain and the European Union, the European Central Bank, and the International Monetary Fund--are those all the players?--has now been reached, and Spain's president of the government, Mariano Rajoy, announced a new series of austerity measures this week. Here's the list, as I interpret it, from an article in El Pais the day after the announcement. Since there was an awful lot I did not realize or understand about the Spanish economic system before the crisis and the announcement of improvement efforts, it can certainly be that I don't fully understand some of the measures announced. 

• Changes to IVA, the value added tax on almost everything, will certainly affect the most people--literally everyone. Spain having had "one of the lowest VAT rates in Europe," the current base rate of 18% will go up to 21%. I have previously written about the ins and outs of the IVA tax and I am sorry to see that now it is changing and becoming even more complicated. But I am glad to see that there will continue to be a reduced IVA for most food items, sanitary products, transportation, hotels, and admissions to cultural events--even though that category will go up from 8% to 10%-- and that the super-reduced IVA of 4% for basic necessities of bread and vegetables will remain the same. A subsequent story later in the week, however, alludes to several categories of the "reduced IVA" products being moved to the regular 21% category--primarily entertainment products like TV and entrance fees (Internet services?)--but not food.

• Government workers--including elected members of parliament--will lose their annual Christmas bonuses for, at least, 2012, 2013, and 2014. A long tradition in Spain, the Christmas bonus typically was equivalent to one month's salary, so in essence these people are taking a 7 1/2 percent pay cut for three years. 

•  Unemployment benefits will be reduced, starting in September, for new recipients. Nearly 25% of Spaniards are unemployed.

• "Green" taxes will be increased, including at least a 3-5 cent per liter hike in fuel taxes.

• The pension system will be reformed to make it more sustainable. It looks as though early retirement will be targeted.

• The number of municipal workers will be reduced by 30%. Mayors and city councilors will be required to make their salaries public. Provincial government will play a greater role in order to maintain public services evenly throughout regions.

• A popular tax deduction on the purchase of new properties will be eliminated.

• Taxes on energy will be changed. Details to follow.

• The government will continue reducing and even eliminating state-owned companies at the local level that "duplicate or even triplicate services."

• Subsidies to political parties, labor unions, and business organizations will be reduced by 20% --they have already been reduced 20% this current year.

Lest anyone think that Spain has not already taken some stringent fiscal steps, let me tell you some of the ways that the country is already cutting back spending.

First of all, the regional governments are paying some bills very slowly. This has been going on for months, but it is coming closer to home now. Local pharmacies were closed for at least two days in the past month in protest because they had not been paid by the Valencian autonomous comunidad for medications they had issued to customers.

Co-payments are being instituted for drugs and medications. Whereas you used to be able to have prescriptions filled for free, as long as you had the script from your local public doctor and a valid health car, consumers are now going to have to pay for part of the cost. How much? Some reports have said 10%; others imply more. A list of at least 400 drugs has been targeted, some for them for "routine but chronic ailments" such as diabetes, blood pressure, and heart disease.

Spain has cut down on those who qualify for free medical care. Undocumented residents, or those who have not successfully completed the process of acquiring accepted documentation (and I was in that category once) will no longer receive health services. Exceptions are made for certain groups: infants and children under the age of 18; pensioners, age 65 and older; pregnant and nursing women.

Life here is definitely becoming more expensive. Some will feel it more than others, but I think we will all feel it somewhat from now on.