SPAIN is cutting $63bn from its budget this year as part of one of the toughest austerity drives in its history.
Changes will include freezing public sector workers' salaries and reducing departmental budgets by 16.9 per cent.
Government says it will raise $28.8bn this year, aided by an increase in tax for large companies.
Deputy Prime Minister Soraya Saenz de Santamaria said the nation was in an "extreme situation".
"Our top priority is to clean up public accounts," she said.
"This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs."
But economists are questioning whether the cuts will be enough to satisfy Spain's European partners.
Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain's deficit from 8.5 per cent to 5.3 per cent of GDP in 2012.
Javier Diaz Gimenez, professor of economics at IESE Business School in Madrid, said: "This seems to be non-credible. They will not be making the 5.3 per cent target agreed with Brussels, because the cuts are insufficient given the growth forecast," he told BBC News.