Spain's Rajoy Unveils Budget in Shadow of Unrest in Catalonia

(Bloomberg) -- Spanish Prime Minister Mariano Rajoy unveiled a budget with reduced taxes for workers on lower incomes and raised payments for pensioners in a bid to boost support for his minority government that’s been leaking support since Catalonia’s independence crisis.

His spending plan approved in cabinet on Tuesday includes increases that will benefit 5.7 million pensioners and widows. It’s based on forecasts that the economy will grow 2.7 percent this year, up from a previous estimate of 2.3 percent given in October, and that unemployment will fall to 15 percent as sustained growth creates about 500,000 jobs.

Rajoy is trying to kick-start his policy agenda after a string of opinion polls showed his People’s Party losing support to the liberals of Ciudadanos. While Ciudadanos leader Albert Rivera has said he’ll back the budget, it won’t pass without the votes of the Basque PNV party, which has so far withheld support amid anger over a legal crackdown on leaders of Catalonia’s independence movement.

“The government aims for the recovery to reach all Spaniards with no one left on the sidelines,” Government Spokesman Inigo Mendez de Vigo said in a news conference. “Not approving them would hurt everyone and not benefit anyone.”

Approval of the budget is a major test for Rajoy’s ability to keep governing until 2020, when new elections are due. With a budget in place before summer, the premier would have sufficient support to govern for at least another year. He’ll take the budget to parliament on April 3, Budget Minister Cristobal Montoro said.

The government is currently facing nationwide protests from pensioners demanding a raise as inflation bites into their spending power. While luring voters with new concessions, Rajoy has to square that with pressure to narrow the budget deficit and nurture a five-year recovery.

He’s betting that ongoing economic growth will translate into more jobs, something he needs to see to meet one of his core aims -- reaching 20 million people at work by 2020.

“This is a budget for civil servants, pensioners and middle-earners,” Montoro said.

The budget presented Friday includes a 3 percent increase for minimum pensions and 1.5 percent for pensioners taking home as much as 9,800 euros ($12,129). The changes to taxes include raising the amount of salary at which income tax starts to be levied to 14,000 euros from 12,000 euros and reducing tax for those earning under 18,000 euros.

To contact the reporters on this story: Maria Tadeo in Madrid at mtadeo@bloomberg.net, Thomas Gualtieri in Madrid at tgualtieri@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Penty

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