By Andrés González
MADRID (Reuters) - Spain's debt will rise to almost 100 percent of national output by the end of next year, the highest level in more than a century, according to the 2014 budget proposal handed to Parliament on Monday.
The ratio of debt-to-gross domestic product (GDP) will rise to 99.8 percent by the end of 2014 from 94.2 percent at the end of 2013. Debt stood at 92.2 percent of GDP at end-June.
Spain's public debt has almost tripled since a decade-long property bubble burst in 2008, sending the country into a five-year long economic slump. It is expected to continue rising for at least another three years.
That will keep adding to Spain's debt servicing costs at a time when it is fighting to reduce one of the euro zone's highest public deficits.
Treasury Minister Cristobal Montoro reiterated on Monday that new austerity measures wouldn't be necessary in 2014 to meet fiscal targets set by Brussels as the country is expected to return to growth by the second half of this year.
"The budget for 2014 is an economic recovery budget. This budget will help us return to growth and create jobs in our country," Treasury Minister Cristobal Montoro said.
The budget is unlikely to face any challenge in Parliament where the ruling People's Party (PP) has an absolute majority.
The budget also said pensions would rise by 0.25 percent through 2014 after a reform of the system passed on Friday which aims to link pension hikes to economic health, the number of pensioners and the state of the social security system.
The budget said the Treasury would need to issue 243.9 billion euros (204 billion pounds) of gross debt next year after budgeting for gross issuance of between 215 billion and 230 billion euros last year.
Most of the issued debt would be via bonds or T-bills, but according to the budget document the government would consider issuing up to 7 billion euros in other instruments or currencies if other interesting financing options arise.
"Despite a fall in financing costs this year, the increase in circulating debt means the financial burden will rise again in 2014," the budget said.
Interest payments on public debt are forecast to rise to 36.6 billion euros next year, or 3.5 percent of GDP, according to the budget's assumption of interest rate costs of 36.5 billion euros, or 3.4 percent of GDP.
The yield on Spain's benchmark 10-year bond stood at around 4.36 percent on Monday, according to Reuters data, compared to a record high of over 7.6 percent in the summer of 2012 when jitters about a breakup of the euro zone were at a peak.
(Writing and additional reporting by Paul Day; Editing by Christina Fincher)