Spending cap on Spain regions is not for now: Salgado

6th July 2011, Comments 0 comments

Spain's plan for a spending cap on regional governments is aimed at reining in expenditure only after the economy has fully recovered, Finance Minister Elena Salgado said Wednesday.

The priority now was getting the powerful regions to cut spending sharply, not to limit future increases, the finance minister said in an interview with AFP.

Spain's government said June 28 it would formally propose this month a spending cap on powerful regional governments, whose 121-billion-euro debt is a major concern on the markets.

But the new measure is not expected to take effect until the economy has recovered sufficiently that the regions might actually increase spending, she explained.

"It is not for now, because at the moment spending has to be reduced, and by a lot, to comply with the stability goals, with the plan we have agreed with Europe," Salgado said.

"At the moment, there is no possibility for spending to increase and the spending rule is for when spending can increase," she added. "The spending rule is designed for when the economy is going very well."

Spain's central government cut the public deficit from 11.1 percent of gross domestic product (GDP) in 2009 to 9.4 percent in 2010 even as regions pushed up their deficit from 1.92 percent to 2.83 percent.

Madrid has promised to lower the deficit further to 6.0 percent this year, 4.0 percent in 2012, then to a eurozone-agreed limit of 3.0 percent in 2013 and 2.1 percent in 2014.

Moody's Investors Service warned last month that regional governments' credit ratings were under threat unless they took further measures to rein in budgets.

Salgado said the regions last year missed their deficit targets by a few tenths of a percentage point.

But the government had only approved the adjustment in May 2010, giving the regional governments little time to react, she added.

"Now they know from the beginning that they have to comply with the deficit target -- I hope that when we present the figures for the second quarter we will see that that they are in fact reducing the deficit," Salgado said.

Budget deficits for the regions may have been distorted in the first quarter as some governments may have brought forward spending ahead of June local elections, the minister added.

"We hope in the second quarter the situation will normalise, even more so in the third (quarter)."

The new spending rule would oblige governments to calculate their budgets based on the real economic performance of the five previous years, the current year, and the three years ahead, Salgado said.

Each year they would be drawn up in line with a constant inflation forecast of 1.75 percent so as to remain below the European Union goal of 2.0 percent, she added.

© 2011 AFP

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