Madrid (CNN) -- Spain's new government announced a series of spending cuts Friday intended to bring down the country's soaring deficit amid concerns over the European debt crisis.
The conservative Popular Party, which was only sworn in last week, has said it will set out its full budget by March 2012 but urgent action is needed to reduce borrowing.
Among the austerity measures ahead are a continued freeze on public sector salaries and hiring, as well as a freeze, for the first time, on the minimum wage, said Budget and Public Administration Minister Cristobal Montoro Romero after a Cabinet meeting Friday.
The only public spending increase next year will be on pensions, which will rise by about 1%, he said. Pension payments were frozen under the Socialists, who led the previous government, amid much public outcry.
Spain's austerity angst
Welfare payments for the unemployed will be maintained, Montoro said, while those earning the most will face higher taxes.
Tough measures are needed for the next two years because the 2011 deficit is higher than expected, at 8% of Gross Domestic Product, Montoro said. GDP is the total market value of all the goods and services produced by a country in a given year.
He said the government was asking for sacrifices from those who have more, rather than the ones who are already suffering.
Prime Minister Rajoy, whose party won a landslide election victory over the Socialists last month, has said his top priority is pulling the nation out of its deep economic crisis.
Investors have been closely watching yields on euro area government bonds this year for signs the debt crisis is spreading to larger economies such as Spain and Italy.
The concern is that their governments may not be able to service their debts and fund their activities if borrowing costs hold above 7% for a sustained period. If that happened Spain and Italy might be the next eurozone nations to need a bailout.
Yields on 10-year Spanish bonds hit a 6.7% high in November but have dropped back since.
In a speech to Parliament after he was sworn in last week, Rajoy reiterated his campaign theme that fixing the broken economy, including boosting growth and job creation, would be his priority.
About 5 million people in the country are jobless. Spain has an overall unemployment rate of 21.5%, but its youth unemployment rate is a staggering 45%.
Rajoy said 16.5 billion euros (about $21.5 billion) would be cut from the budget next year to meet Spain's deficit reduction target, in measures yet to be spelled out in full.
He said there would soon be labor market reforms to make Spain's workforce more flexible and competitive, and that there would be mergers and takeovers in Spain's troubled banking sector -- which holds a lot of bad debt from 750,000 unsold new homes that went up during the real estate boom but before the financial crisis and credit crunch set in.