Spanish regions miss public deficit target at start of year

Spain's central government remains on track to meet its deficit-reduction target, but some of the regions overshot their spending limits and may need to step up their fiscal consolidation efforts, Economy Minister Elena Salgado said Tuesday.

The shortfall in the central government's books in the first four months of the year fell by 53 percent to 2.450 billion euros, equivalent to 0.22 percent of GDP. In contrast, the deficit for the regions in the first quarter came in at 4.996 billion euros, equivalent to 0.46 percent of GDP, compared with a goal of 0.3 percent.

Salgado told a news conference that despite overshooting at the start of the year it was "perfectly possible" for the regions as a whole to meet the deficit target for the full year of 1.3 percent of GDP.

The Economy Ministry said that the figure for the regions for the first quarter was derived using a method that differed from that used by the European Commission.

Salgado said it would be wrong to read too much into the performance of the regions at the start of the year, noting that they had managed to meet the goals set for cuts in personnel costs, with the exception of Andalusia.

However, she noted a more "erratic" performance as regards reining in investment spending, with "significant growth" in this area in some of the regions, a common development ahead of elections (Spain held municipal and regional elections on May 22). The minister said she would request more information from those regions that had surpassed their spending caps.

The regions failed to meet the deficit cap set for them last year of 2.4 percent of GDP, with the figure coming in at 2.8 percent. The biggest deviations took place in Castilla-La Mancha, Murcia, the Balearic Islands and Catalonia.

Salgado predicted that it would not be necessary to introduce further austerity measures to meet the deficit-reduction target for the whole of the public administrations this year of 6 percent of GDP, down from 9.2 percent in 2010. The aim is to ultimately trim the shortfall to the European Union limit of 3 percent in 2013.

The government's fiscal consolidation drive includes public-sector wage cuts, a freeze in state pensions, spending cuts and tax hikes.

Figures released Tuesday by the National Statistics Institute (INE) showed that public spending on research and development in Spain fell 0.9 percent in 2010, the first contraction in 14 years.

Separately, the European commissioner for competition, Spaniard Joaquín Almunia, suggested the regions should be subject to a "legally binding" cap on their spending to ensure the deficit reduction targets are met, an option the central government has so far eschewed.

"My opinion, as a commissioner and as a Spaniard, is that the regional governments should introduce as soon as possible a legally binding rule on limiting spending in their budgets," Almunia said at a seminar in Brussels organized by the think-tank Bruegel. The rule, he said, should be agreed by the two main parties that make up the majority in practically all of the regional parliaments.