Two weeks behind schedule, the government has sent a proposal for its two-year plan to save 102 billion euros. The plan includes new taxes and spending cuts that were approved two weeks ago. For example, the VAT will go up in order to increase Spain's tax base by 19.8 billion euros through 2014.
On paper, the two-year plan ought to allow Spain to shore up its deficit, which is its primary goal for the next two years, and regain confidence from other European nations. The work will be hard considering that the country's economic picture could be changed for the worse by massive cutbacks. Healthcare and education spending, for example, will now shrink by 15 billion euros instead of 10 billion euros as previously planned.
The government's forecast is based on an expectation for 1.2% GDP growth in 2014 after two consecutive years of recession (-1.5% in 2012 and -0.5% in 2013). Still, other forecasts, such as the one carried out by the Spanish Banking Association, predicts that Spain's real GDP will contract 1.8% in 2012 and 1.1% in 2013. What pans out from these predictions will depend on the ability of regional governments to make sacrifices, because they are respondible for 37% of national spending.
The national government has doubled the timeframe that it will allow the regions to repay debts that they owe, facilitated outstanding payments to service providers and opened lines of credit. Considering these considerable measures, the regions have to make an effort, too.
