Madrid, July 13
Spanish unions have announced a national day of protest as workers rain down criticism on a new 65-billion-euro ($80-billion) austerity package.
Obliged by Brussels to order new cuts and tax increases to meet newly relaxed deficit-cutting commitments, Prime Minister Mariano Rajoy revealed the latest blow to Spaniards on Wednesday.
Adding to the pain of recession and a 24.4-percent jobless rate, he announced a string of measures including a rise in VAT sales tax, lower jobless benefits, and reduced income for government workers.
The two biggest unions -- the UGT and CCOO -- reacted immediately, calling for a day of protests across Spain on July 19, saying the new steps hit people on low and average earnings hardest.
"Not one of the approved measures implies any effort by businesses and those on highest incomes," it said in a statement.
On Wednesday evening, protesters already called for "justice" in the streets of Madrid, brandishing signs reading: "They are sinking the country."
The austerity package, in particular the value-added tax rise, is expected to brake consumption and deepen the recession.
The government has forecast a 1.7-percent economic contraction this year. Further shrinkage in activity is expected in 2013, albeit a decline that is "closer to zero", according to Rajoy.
The 57-year leader of the ruling conservative Popular Party assured parliament that the new steps were necessary, but Spaniards worried about the outlook.
"Is this going to be of any use?" asked an editorial in business daily Expansion.
"Of all these measures, none of these measures will create any jobs, in fact they will deepen the plunge in gross domestic product."
Edward Hugh, an economist based in Barcelona, said the package would not go down well with Spaniards.
"I think the majority of the Spanish people, rather than the banks and the government, are not going to understand the whole deal and they are not going to be very happy with this," he said.
From the tourism industry to fisheries, car show rooms and consumer associations, there were deep worries about the VAT increase.
In the latest measures, the general rate of VAT goes up to 21 percent from 18 percent, and the reduced rate on some products such as food goes up to 10 percent from eight percent. A special four-percent rate on basic needs such as bread is untouched.
Tourism, accounting for about 10 percent of Spanish economic activity, would be among the hardest hit by the new, higher VAT rate of 10 percent on discounted items.
"A sledge-hammer blow" said Ramon Estalella, secretary general of the hostelry association CEHAT. The secretary general of the hostelry federation FEHR, Emilio Gallego, said industry revenues could be cut by 2.4 billion euros.
Car makers association ANFAC said the VAT impact would cut auto sales by 20,000 to 25,000 cars this year, in a market already in a slump.
On Thursday, industry after industry issued new, dire forecasts, such as the Spanish fisheries confederation CEPESCA which denounced a "cold shower" for the troubled sector.
Two consumers’ associations, OCU and CEACCOU, calculated that the increase in the general rate of VAT to 21 percent would increase a typical household’s expenses by between 415 and 600 euros a year.
"One of the engines to get out of this crisis is household consumption and until that is restarted economic activity will not restart either," said Aurelio del Pino, director general of the Spanish supermarket chain association, denouncing the "negative" impact of the tax change.
