Spain acts to boost coffers, stimulate housing

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Spain's government agreed Friday steps to boost state coffers by 4.9 billion euros ($7.0 billion) and aid the property sector in 2011, aiming to calm fears of a sovereign debt crisis.

A cabinet meeting called by Prime Minister Jose Luis Rodriguez Zapatero agreed three key measures:

-- Big companies will have to pay some tax installments earlier, bringing in an extra 2.5 billion euros for the state this year.

-- Health authorities will be obliged to buy generic drugs instead of more expensive branded treatments, saving another 2.4 billion euros this year.

-- Finally, value added tax on purchases of new homes will be slashed from 8.0 percent to 4.0 percent until the end of 2011 so as to inject life into a sector flailing since the 2008 property bubble collapse.

Finance Minister Elena Salgado said the measures would take effect immediately by decree.

A second cabinet meeting August 26 will take aim at boosting employment in a country suffering an overall jobless rate of 20.89 percent and more than 45 percent for the under-25s, she said.

"We are going to carry on taking measures to stimulate and favour growth, which will strengthen those we already have in place, in the labour market," the minister added.

The cabinet would also urge parliament to convene an extraordinary session next week to ratify the decisions, government spokesman Jose Blanco told a news conference.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a property bubble. It stabilised in 2010.

Spain announced plans to take extra steps to shore up the state coffers after its government bonds came under heavy attack in the markets last month, sparking concern about Madrid's ability to pay its debts.

The European Central Bank squashed much of the speculation when it intervened in the market earlier this month, buying hard-hit Spanish and Italian government bonds after the two countries took extra belt-tightening measures.

Spain's public deficit last year amounted to the equivalent of 9.2 percent of its gross domestic product, or total economic output, a worryingly high level of borrowing.

The government has vowed to slice the deficit progressively to 6.0 percent of GDP this year, 4.0 percent in 2012 and 3.0 percent, the EU limit, in 2013.

The new Spanish measures were issued just as stock markets worldwide plummeted on fears of a new global recession.

© 2011 AFP

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