Spain's Prime Minister Mariano Rajoy warned of Spain's unsustainably high borrowing costs Wednesday. Reuters

Spanish Prime Minister Mariano Rajoy told lawmakers in Madrid on Wednesday he will move forward with €65bn in budget cuts.

After promising late last week to press the accelerator pedal on spending and tax reforms, Rajoy outlined a serious of major efforts aimed at reducing his nation's budget gap and securing the faith of his European Union partners.

The move comes only days after the debt-ridden country won support for a European-led rescue of its beleaguered banks and an extension on its deficit reduction timetable.

After several interruptions from opposition MPs, Rajoy said he plans a 3 percent hike to VAT - taking it to 21 percent - while simultaneously cutting some income taxes, eliminating property tax breaks and setting out timetables for state sales of airport, railway and port assets.

Christmas bonuses for senior public servants were also symbolically axed as Rajoy pledged a review of unemployment benefits and vast public spending cuts.

Collectively, Rajoy told Spain's parliament that the cuts and tax increases would total around €65bn over the next 2.5 years.

And as unemployment rates climb above 24 percent, the PM hinted at further punishing cuts to come.

The cuts are being introduced to conform with the terms of July's €30 billion euro zone bank bailout.

The tough measures have sparked off massive street protests across the country.

Thousands of coal miners are flooding Madrid to protest against the proposed measures. Miners were seen clashing with the police outside coal mines recently.

Angered at the latest cuts in coal subsidies from €301 million (£237 million) to €111 million (£87 million) a year, the miners are concerned that this would result in loss of thousands of jobs. The protesters assert that the cuts have the potential to completely destroy the coal industry.

Many of the miners were walking hundreds of miles from the northern part of the country to participate in the demonstration.

Wednesday's demonstration is expected to draw at least 25,000 people to Madrid.