Spanish PM Mariano Rajoy has announced a 3% VAT rise in a series of austerity measures aimed at cutting the public budget by 65bn euros (£51bn;$80bn).
Crowds lined the streets of Madrid to welcome the coal miners
The changes come as hundreds of Spanish miners arrived in Madrid to protest against government cuts to subsidies.
Mr Rajoy said sales tax would go up to 21% and there would be a 3.5bn euro cut in local authority budgets.
The measures are in return for a eurozone bank bailout and an extension to Spain's deficit reduction targets.
Eurozone finance ministers have agreed to provide 30bn euros (£24bn) for Spain's troubled banks by the end of the month and to give Madrid an extra year - until 2014 - to hit its budget targets.
The prime minister told parliament that the measures he was announcing had to be adopted without delay.
The package of tax rises and spending cuts would cut the budget by 65bn euros over two-and-a-half years, or 6.5% of GDP, he said.
"The excesses of the past are being paid for right now," he said, adding that Spaniards had never before experienced such a recession.
Without a cut in Spain's budget deficit, public services would be put at risk. Savings of 3.5bn euros would be made to government administration budgets: local authorities would not be able to offer services they could not afford and the number of councillors would be reduced by 30%.
The door had been opened to a new EU model, he said, and the summit agreements had committed everyone equally.
Spain's unemployment is running at more than 24% and analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.
"What animates us is the five million people out of work," Mr Rajoy told parliament.
Clashes
Most of the miners arriving in Madrid late on Tuesday had walked hundreds of miles since 22 June from northern Spain where protests outside coal mines have resulted in clashes with police.
They were greeted by thousands of supporters as they marched on Gran Via in the centre of the Spanish capital.
A second mass rally of miners is due to take place on Wednesday and unions hope it will draw at least 25,000 people.
The miners are angry at plans to slash coal industry subsidies from 301m euros last year to 111m euros this year.
Unions say the cuts threaten 30,000 jobs and could destroy their industry.
The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.
Overnight the miners streamed down Madrid's streets with their helmet lamps shining in the dark.
Crowds lined the streets, chanting support.
"We didn't expect such a big welcome," said Roberto Quintas, a miner of 22 years from Villablino near Leon.
"The fact that people are coming into the street and mobilising is a good sign."
Manuel Cinoceda, a retired miner from the Aragon region, added: "The fight is for something just, we are just coming to claim what is ours."
Spain's 30bn-euro bank bailout will be the first instalment of a package worth up to 100bn euros agreed in June.
Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.
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