Spain's debt as a ratio of gross domestic product will reach 90.5% by the end of 2013, according to the document presented to Parliament for approval, almost three times that registered before the property bubble burst in 2008.
The budget aims to make savings of around €13-billion ($16.7-billion) next year, largely by deepening already unpopular cuts in public sector wages, education, health and social services, fuelling anti-austerity protests.
"This is an austerity budget, but will serve to help us get over this long economic crisis and once again show that Spain is a trustworthy partner within Europe," Treasury Minister Cristobal Montoro told journalists after delivering the budget.
Spain is at the centre of the eurozone debt crisis as nervous investors demand ever higher premiums to hold Spanish debt on concerns the government cannot control its finances in the midst of a deepening recession.
Calls by wealthy north-eastern region Catalonia for independence and the rising number of demonstrations on the streets of major cities have stoked doubts Spain can fix its problems without help.
Thousands of protesters gathered on Saturday in Madrid's Neptune plaza, between the Prado Museum and Parliament, for a third time this week to vent anger at politicians they accuse of pillaging the welfare state to bail out badly-run banks.
"This has to change. We have to show them we are not an anti-system minority but represent Spain's discontent and we are many. You only have to see the unemployment rate to see that," said state school teacher, Montse (44) who was at the march with her unemployed husband and 11-year-old daughter.
Unemployment in Spain is more than double the European Union average, with half of all working-age under-26s unable to find jobs and shattered businesses laying off employees they cannot afford to pay.
Prime Minister Mariano Rajoy has delayed any plea for aid, which would kick-start a European Central Bank plan to buy debt and ease financing costs, though this week has passed reforms and the budget plan in what many see is an effort to pre-empt the likely terms of a bailout.
Rajoy, who said he is considering the conditions behind any aid request, is widely expected to wait until after regional elections in Galicia and the Basque Country before taking any decision.
Rising borrowing needs
The budget details spending cuts of 3.1% in health, 14.4% in education and 6.3% in unemployment benefits, as the recession, which began in the first quarter, drags on.
Spain will also slash state funding to commerce, tourism and small, and medium-sized companies by 18.8% and infrastructure by 13.5%.
The government will increase its reliance on international markets for funding next year, with gross debt issuance requirements of €207.2-billion, after budgeting in 2012 for gross issuance of €186.1-billion.
The cost of financing its debt, as benchmark 10-year bond yields rise to near unsustainable levels of above 6%, is expected to increase to €38.6-billion, or 3.6% of GDP, in 2013, the budget showed.
The Treasury must pay debt redemptions of €159.2-billion in 2013, up slightly from €153.2-billion in 2012.
The increase in the debt-to-GDP ratio was due the economic crisis and the effect of state instruments on public accounts, the Treasury said in the document.
The instruments include the power deficit bond programme, Fade, the service provider fund for regional governments, Spain's part in aid granted to Ireland, Greece and Portugal and the recapitalisation loan for the country's banks, it said.
Brussels on Thursday said the budget was a large step in the right direction. But many economists expressed doubt Spain's conservatives would be able to raise the cash the budget demanded as pension and debt-servicing costs rise.
"My general view is that this is an optimistic budget, in the sense that predictions for the contraction in 2013 are very optimistic," said Xavier Vives, economist at business school IESE, adding he expected the plans to be revised as with every other budget over the last four years.
The budget is based on the assumption GDP will shrink by 0.5% in 2013 year-on-year, though most economists expect a deeper slump.
Spain will meet its 2012 public deficit target as dictated by European guidelines, Montoro said, but the shortfall will jump by more than one percentage point if aid to its struggling banks were taken in to account.
The Spanish deficit this year would be 6.3% of GDP, not including these payments to its banks, he said, but would rise to 9.4% of GDP last year and 7.4% of GDP this year if the aid was considered.
"Everything within the deficit derived from financial operations aren't included … they're considered one-offs," Montoro said.
Spain has asked for up to €100-billion for its crisis-hit banks, though the debate among Spain's European partners rages over whether that money would go directly to its lenders or first via public coffers.
On Friday, an independent report showed Spanish banks will need up to €59.3-billion in extra capital to ride out the economic downturn.
The budget details on Saturday showed Spain's debt ratio included €30-billion of the planned €100-billion aid request for the country's banks. – Reuters