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 . 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 . CNN 's Al Goodman and journalist Belen Chiloeches contributed to this report .
New Prime Minister Mariano Rajoy has said Spain 's economic recovery is his top priority . Public sector wages and hiring are to be frozen in next year 's budget . Pension payments , which had been frozen , will increase by 1 % .