Spain's new government said on Friday that the country's budget deficit is higher than previously thought as it announced a new package of spending cuts and tax increases designed to conform to the eurozone's austerity pact and fend off attack by international financial markets.

"We are forced to take extraordinary decisions and adopt unexpected measures," the Spanish vice-president Soraya Sáenz de Santamaría said as the new government opened the first chapter of what looks like being a long tale of austerity. Sáenz de Santamaría said the measures were necessary because the public deficit is running at 8%, not the 6% they were led to believe by the outgoing administration, a difference of about €20bn (£17bn).

The principal measure comes in the form of an €8.9bn budget cut spread across all government departments. There are also across-the-board income tax increases and for home-owners, a one-year freeze on public sector salaries, a freeze on the minimum wage of €641.40 a month and cuts in subsidies to trade unions and political parties. Pensions, as promised, will rise by 1% next month, and the cut-off point for unemployment benefit is to be extended for a further six months.

"These measures are the beginning of the beginning of a package of structural reforms designed to cut the deficit and stimulate the economy," Sáenz de Santamaría said. Financial and employment law reform are being held back until later in January. It is rumoured that Mariano Rajoy's government may delay the really unpopular measures until the end of March, after the regional elections in Andalusia which his Partido Popular hopes to win for the first time in its history. The full budget, designed to meet Rajoy's target of €16.5bn in cuts, will not be presented to parliament until 31 March.

As well as freezing public sector wages, Spanish civil servants will find their working week extended from 35 to 37.5 hours. Vacancies will not be filled except in health, education, state security and the armed forces for an unspecified time. Cuts in subsidies to political parties are expected to save €29.7m while the reduction in trade union and other representative bodies' funding will save €55m.

Income tax on salaries of €9,500 will rise 0.75% and by up to 7% on incomes above €300,000. Property tax, roughly equivalent to the UK council tax, is also going up on all properties that are "above average value," which in reality means 50% of urban property. Sáenz de Santamaría said the increases, which "are temporary and only for the next two years," would raise €6.2bn. Rajoy's party enjoys an absolute majority so it can be taken as given that these measures will become law.

Rajoy, who won the election without promising anything at all, still seems to be holding back on deep reform. The cuts are more slash and burn than structural and the government is still ducking the issue of employment reform. Spain's employment laws have created a two-tier system of virtually unsackable employees with cast-iron contracts – doggedly defended by the trade unions – and a much larger group of workers with no job security. Employers are reluctant to offer full-time contracts because of the cost of making people redundant. Rajoy was not present at the press conference. Sáenz de Santamaría was accompanied by Luis de Guindos, the finance minister; Cristóbal Montoro the inland revenue minister and Fátima Báñez, employment.

No ministry escapes unscathed, with budget cuts of €485m at employment, €439m at the inland revenue, €409m at the health ministry, €401m at agriculture, €340m at defence, €163m at the interior ministry and €48m at the justice department. However, the biggest cuts are reserved for the ministry of works, €1.6bn, and 1bn each for the foreign, industry and finance ministries.

Amid all the austerity, there were no measures that appeared to be designed to boost productivity or dent Spain's crippling 23% unemployment rate. Indeed, the spending cuts seem certain to lead to job losses. Sáenz de Santamaría, who gave birth to her first child six weeks ago, also announced the suspension of plans to extend paternity leave to one month until 2013.