Prime Minister Mariano Rajoy announced a swathe of new taxes and spending cuts on Wednesday designed to slash 65 billion euros from the budget deficit by 2014 as recession-plagued Spain struggles to meet tough targets agreed with Europe.

Rajoy, of the center-right People's Party, proposed a 3-point hike in the main rate of Value Added Tax on goods and services to 21 percent, and outlined cuts in unemployment benefit and civil service pay and perks in a parliamentary speech interrupted by jeers and boos from the opposition.

"These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billions of euros," Rajoy told parliament.

He also announced new indirect taxes on energy, plans to privatize ports, airports and rail assets, and a reversal of property tax breaks that his party had restored last December.

However, he did not touch pensions -- keeping one election promise -- and said the tax burden was being shifted from direct taxes on labor and income to taxation on consumption.

Outside in the streets of Madrid, hundreds of coal miners who had staged a march from northern Spain protested against cuts in mining subsidies they say will put them out of work, as public discontent over austerity measures grows.

With five years of economic stagnation and recession , unemployment at 24.4 percent and tax revenue falling, Spain is struggling to meet tough deficit cutting targets agreed with the European Union.

The high deficit and weak banks, which will receive up to 100 billion euros in European aid, are now at the center of the euro zone's debt crisis as investors fret that Spain could join Greece, Portugal and Ireland in needing a sovereign bailout.

Madrid's borrowing costs have soared in recent months, with the yield on the 10-year government bond breaching the 7 percent level regarded as unsustainable in the long run. On Wednesday, that yield fell to 6.81 percent.

The EU agreed on Tuesday to give Spain more time, until 2014 instead of 2013, to bring the public deficit down to 3 percent of gross domestic product and relaxed this year's goal to 6.3 percent. However, a European Commission document said even that easier target would be difficult to reach.

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