Government remains on track to meet deficit goal

The Spanish central government continues to make progress in reining in its budget deficit as the austerity measures introduced to tackle the problem bear fruit.

The Economy Ministry said Tuesday the shortfall in the government books in the first eight months of the year fell 11.5 percent from a year earlier to 30.867 billion euros. As a result, the public deficit narrowed to 2.8 percent of GDP from 3.3 percent a year earlier. Presenting the figures, the secretary of state for finance, Juan Manuel López-Carbajo said the performance in the period January-August left the central government on track to meet its target for the full-year of 4.8 percent of GDP.

The belt-tightening measures introduced by the outgoing Socialist government of Prime Minister José Luis Rodríguez Zapatero include a cut in public-sector wages and a freeze in state pensions. The government's payroll costs fell 3.9 percent in the first eight months, reflecting the average 5-percent cut in wages. The standard value-added tax rate was also hiked to 18 percent from 16 percent.

General elections are due to be held on November 20. The opposition conservative Popular Party is expected to defeat the Socialists, according to opinion polls. In the event of his party winning the elections, PP leader Mariano Rajoy on Monday said he would have to see the state of the economy on taking office before deciding if the austerity measures put in place by the Socialists would be maintained.

Government outlays in the first eight months of the year fell 14.9 percent from a year earlier, while revenues fell 16.4 percent to 99.191 billion euros as economic recovery remained anemic.

The government's target for the public deficit for the whole of the public administrations this year is 6 percent of GDP. There are, however, some doubts about whether the country's regions can fulfill their commitments. As a whole, the shortfall in their books in the first half of the year was 1.2 percent of GDP, compared with a goal for the full year of 1.3 percent.

López-Carbajo said all the regions need to make an effort to reduce their deficit, introducing whatever measures are required to do so. Catalonia on Monday proposed cutting healthcare workers' Christmas bonus by half. "What each region does is their decision," he said.

López-Carbajo said the government was not operating on the premise that it would have a "cushion" in terms of its debt-reduction efforts to absorb any overshoot by the regions.

Along similar lines, in an interview Tuesday with state broadcaster RTVE, Economy Minister Elena Salgado acknowledged that some of the regions had started "late" in getting their financial houses back in order.

The minister defended the government's recent decision to reintroduce the wealth on the need for more revenues at a time when economic growth remains sluggish.

Separately, Salgado expressed concern about the time euro-zone countries were taking to approve the European Financial Stability Facilty (EFSF), with the process not expected to be completed until October 14. She denied there had been any discussion about extending the size of the EFSF to 2 trillion euros from 440 billion euros.