By Simon Miller

The Spanish government is to implement €27bn (£22.6bn) in spending cuts and tax increases it was announced this afternoon.

The government told the Spanish parliament that it aims to generate €12.3bn in revenues though tax modifications and expects income tax revenues to increase by 4.3% in 2012, with corporate tax revenues up by 17.8%.

The tax increases and spending cuts of 2.5% of GDP are aimed at meeting its deficit target of 5.3% by the end of the year as demanded by Brussels and Treasury minister Cristobal Montoro said Spain's ultimate goal was to meet the 3% deficit by 2013.

Introducing the budget, Deputy Prime Minister Soraya Sáenz de Santamaría said: "This is the moment that significant efforts are necessary in the field of fiscal consolidation, reducing deficit and structural reforms in government."

The government will not increase VAT but will implement changes in corporation tax for large companies and will also maintain current pension rates, freeze the salaries of civil servants, and keep unemployment benefits at the same rate.

The budget comes hours after eurozone finance ministers agreed to boost its firewal by combining its two rescue funds to make €500bn of new funds available in case of emergency until mid-2012, in addition to the €200bn already commited to Greece, Ireland and Portugal.

The increased firewall comes short of the €1trn demanded by the OECD among others but will be seen as a victory for Germany after the European Commission pushed for an increase to €940bn.

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