As pressure mounts on Spain’s socialist led government from the EU and finance markets, the government has announced further austerity measures in its hopes of reducing the budget deficit and convince investors that positive economic growth can be expected.
Announcing the measures, Development Minister José Blanco stated that 700,000 new homes remain unsold after the property market crash in Spain, and that reducing the IVA on new homes from 8% down to 4% until the end of the year.
Spain’s decade of housing boom ended with the beginning of the financial crisis in 2008, leaving an estimated 2 million new properties unsold, and leading to Spain having the highest private debt burden in the Eurozone. Though the almost complete meltdown of the construction industry has meant more than half of these new properties have since been sold, the resultant slashing of home prices by as much as 50% in some markets has not been without pain to Spanish home buyers.
Corporate tax payments worth some 2.5 billion euros have been brought forward to 2011 with a decree aimed at boosting government coffers before the Nov 20 election. The socialist government is currently polling to lose the election and appears to be frantically aiming to minimise election losses by introducing measures to bring more stability to the economy.
As well, the government announced restrictions on doctors prescribing branded medications, instead insisting the generic or unbranded medicines must now be prescribed in an effort to shave a further 2.4 billion euros off the national debt.
In the last week, the European Central Bank has been buying up Spanish debt to avoid a possible default by Spain, and at the same time German Chancellor Merkel, and French President Sarkozy have been increasing pressure on Spain to make concerted efforts to cut the budget deficit now, and not after the election.
Previous efforts to stabilise the economy and reduce the debt burden included a sales tax (IVA) increase, slashing of public sector wages, and freezing of pensions.
Economic growth has been affected by the austerity measures, with 2011 forecast growth of 1.8% downgraded to 1.3%, though current forecasts from the National Statistics Institute suggest 0.7% growth might be more realistic. This on top of an official unemployment rate above 20%, the highest in the Eurozone.