Spain Won’t Seek Further Austerity as Deficit Halves

Source: Bloomberg

Nov. 23 (Bloomberg) -- Spain said it doesn’t need to adopt further austerity measures to stem a surge in borrowing costs as the central government’s budget gap narrowed by almost half.

The best thing “to generate credibility in the Spanish economy is to execute the measures we have announced at the time and in the way they were announced, and that implies not taking additional measures,” Jose Manuel Campa, deputy finance minister for the economy, told reporters in Madrid today.

The extra yield on Spanish debt compared with German equivalents hit a euro-era high today as contagion from Ireland’s fiscal crisis swept through the southern euro area. The Spanish government is implementing the deepest austerity measures in at least three decades, including public-wage cuts and tax increases, as it seeks to reduce the region’s third- largest budget deficit by half in two years.

Spain’s central government budget deficit fell to 2.96 percent of gross domestic product in the first 10 months from 5.63 percent a year earlier as tax revenue rose 10.9 percent, the Finance Ministry said in a statement in Madrid. The overall shortfall, which includes the regions’ balances, is also set to meet the government’s goal this year, Carlos Ocana, deputy finance minister for budget issues, told Senate lawmakers.



Read more: http://www.businessweek.com/news/2010-11-23/spain-won-t-seek-further-austerity-as-deficit-halves.html

But we have far more wealthy people paying low taxes than Spain.

WASHINGTON - The budget deficit for fiscal 2010 narrowed to $1.294 trillion from last year's record $1.416 trillion as tax collections started to recover and bailout spending fell sharply.

The Treasury Department said on Friday the deficit came to 8.94 percent of gross domestic product for the year ended September 30, versus 10 percent in fiscal 2009.

The government called the deficit-to-GDP improvement the biggest since fiscal 1987.

Nonetheless, the budget gap was still the second-highest in U.S. history and too big to ease market demands and congressional calls for budget restraint in Washington.

http://www.cnbc.com/id/39696344/

That's CNBC admitting the ratio is way down for 2010, and CNBC is about as conservative as you can get this side of Fox News.

By the way, when you compare tax rates between the US and European countries, you can't just look at the income tax rates. Europeans pay very high Value Added Taxes among other things. Also, their health insurance premiums are encompassed in the taxes they pay. So, we should add our health insurance costs we pay to the amount of taxes we pay if we want to compare apples to apples. We pay far too much for health insurance.

...

On a slightly different but related topic, I note that Spain is cutting retirement benefits. That will have negative repercussions in the end I believe.

I woke up this morning wondering what would happen to grocery store chains and agriculture if the government did away with or decreased expenditures on food stamps. I think they would scream bloody murder in no time. Cutting Social Security would reduce the amount of business being transacted and thus the GDP. That, of course would raise the deficit/GDP ratio.

Same with cutting Social Security. It would not be good for business. Everything spent on Social Security gets spent in supermarkets, for medical care and basic necessities like rent.

The only area in which we can make really meaningful cuts that will reduce the deficit/GDP ratio is defense spending, specifically spending on defense that we do outside the US. We need to close at least half of our bases overseas. We pay to keep bases in other countries, you know.

and its already started.