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Bank of Spain calls for tighter control of regions

Thu 16th Jun 2011

The Bank of Spain's annual report yesterday spoke of how the Autonomous Regions must be set, and abide by, stricter targets to avoid upsetting the national attempt to pull away from the huge deficit the country is currently struggling with.

The report criticised the way that public spending was managed between the regional and central governments, where the regional governments combined hire half of all public workers, control their own health and education budgets, and have a combined debt in excess of 115 Billion Euros. The regions are already behind their targets for 2011 to reduce it's outgoings to 1.3% of GDP.

Last week the region of Catalonia announced that it expects a deficit double that of it's target for 2011. In Castilla-La Mancha in, where the Partido Popular gained control following the regional elections following 30 years of PSOE administration, finances were being reported as being in a dire state. The region had the highest deficit in Spain last year coming in at 6.5 percent of its GDP.

Whilst the Ministry of Finance can control regional budgets indirectly, and has the power to overrule plans for calling in debt, the Bank of Spain reported that the government's powers here are limited. Sanctions could be considered as an additional tool to ensure discipline, the report said.

Spain's attempts to reduce the overall public deficit to 6% of GDP this year from 9.2% in 2010 could need increases in taxes as well as further austerity cuts, the central bank said. Spanish IVA remains low compared with other countries in the EU even after last year's increase that took the main rate to 18% from 16% and seems the obvious target for any country struggling with it's finances.

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