Rajoy Makes Re-Election Case With Spanish Budget for Growth

Updated on

The Spanish government set out its stall for elections later this year with budget pledges to keep cutting taxes and unemployment, boost social spending and bring public debt under control.

Debt as a proportion of gross domestic product is set to fall for the first time since 2007 to 98.2 percent at the end of 2016 from 98.7 percent at the end of this year, the government said in its budget presented in Congress Tuesday. Unemployment will drop to 15.5 percent by the end of 2018 from 22 percent in December this year, government forecasts show.

Prime Minister Mariano Rajoy, 60, is rolling back austerity by raising social spending and restoring wages to civil servants as he primes Spain’s finances ahead of a general election that’s due by the end of 2015. As the recovery takes hold, Rajoy is betting that he can win over voters with pledges to restore economic prosperity amid mounting attacks from his political rivals over corruption scandals afflicting his ruling People’s Party and the social cost of Spain’s financial crisis.

“The government is presenting a budget that pays back to society the effort that it has really made,” Budget Minister Cristobal Montoro said in a news conference in Congress, adding that the government would keep cutting taxes if public finances allow.

Spain forecasts gross debt issuance of 231.2 billion euros ($253.8 billion) in 2016 compared with 239.4 billion euros for 2015. The government targets net indebtedness of 49.5 billion euros for next year compared with 53 billion euros estimated by the Economy Ministry.

The government also confirmed its deficit target of 4.2 percent of output this year and 2.8 percent for 2016, insisting that it’s committed to maintaining fiscal discipline in the election run-up. Growth should come in at 3.3 percent this year, and drop slightly to 3 percent in 2016.

“For an election year it is normal to have this kind of budget -- as an opposition party member said, it’s like giving a little sweet to the people, to the voters,” Geoffrey Minne, an economist at ING Bank, said by phone. “The government has to say they took the right decisions.”