Disturbing adjustment

On Friday Mariano Rajoy's government announced a set of economic measures of questionable political orientation and efficacy in the medium term: an 8.9-billion-euro budget cut, defined by Deputy Prime Minister Soraya Sáenz de Santamaría as only the "beginning of the beginning" of adjustment, and a 6.2-billion-euro tax rise.

There is little to object to regarding such a course, if it is duly focused on the aim of reducing the deficit. The sooner it is carried out, the better. What is less acceptable is to see the new ministers rending their raiment about public revenue and expenditure. The extreme financial weakness of the regional governments run by the PP was in itself sufficient indication of how things stood, and the orderly changeover of power afforded a more exact picture, supplemented by the EU commissioner Olli Rehn's report setting the required Spanish adjustment at 41 billion euros by 2013.

Rajoy promised to call a spade a spade. Yet at the first chance, he has confirmed candidate Rubalcaba's accusations to the effect that the PP intended an adjustment far more drastic than it cared to reveal.

A look at the fine print of the measures shows contradictions between the talk of radical adjustment, and certain concrete measures. The freeze on civil service salaries and hiring tends in the adjustment direction, but it is hard to understand why the tax deduction for owner-occupied housing has been brought back.

This confirms one of the worst fears about the new government's economic policy: it aims to recover employment by stimulating the formation of another real estate bubble. The implicit decision favors precarious employment, in an attempt to paper over the gaping hole in a labor market, which can only worsen in 2012, by filling it with trash jobs.

A budget cutback of this sort must necessarily lead to a prolonged recession. What might have been expected of a government that claims to "know what has to be done," was a combination of budget cuts with some public investment options to stimulate demand. But no such options are mentioned, or even suggested.

The surcharge on income tax is not a "solidarity tax," as is claimed, but an exaction laid upon middle incomes. As such, these salaries pay for 4.2 billion euros of the 6.2-billion-euro tax hike, while capital dividends contribute only 1.2 billion euros. The revenue minister knows well enough that the real gravy bowl from which "solidarity" revenue might be drawn lies in capital dividends, and in the prosecution of tax evasion. The surcharge is one of the traditional patchwork remedies to which the PP's economic team seems accustomed.

For the citizen, the new government's first tangible message is a disturbing one. Before coming to power, the PP promised to favor investment and employment, against all known evidence concerning the effects of an imperative budget cut, and now it starts out with a crushing (though necessary) cutback, a not very equitable tax hike and, at the end, a promise of recession. It is not enough if you verbally transmute the cutbacks into reforms, because they are not reforms. Rajoy owes the public an explanation. On Friday four ministers together were not sufficient to even sketch the general outlines of one.