Public deficit threatening to get out of hand

Despite spending cuts and tax hikes, the Spanish government is still struggling to rein in the public deficit. The shortfall in the central government’s books widened in the four months to April as a result of increased spending on unemployment payments and interest on debt, while tax revenues fell due to the downturn in the economy, the Finance Ministry said Tuesday.

The difference between what the government took in and outlays in the period amounted to a record 25.007 billion euros, equivalent to 2.38 percent in national accounting terms. The ministry said the shortfall in the same period a year earlier was 2.36 percent, virtually the same result. In the first quarter of this year, the deficit was 1.63 percent of GDP.

Financial costs climbed 10.6 percent from a year earlier to 12.591 billion euros as a result of growing debt. Tax revenues declined 6.7 percent with a notable fall of 9.9 percent in value-added tax collections, despite rates being hiked in September of last year.

Spain has slipped back into recession for the second time in four years and the government projects GDP to shrink by 1.3 percent this year. The deficit target for the whole of the public administrations has been set at 6.3 percent of GDP this year.