MercoPress. South Atlantic News Agency

Spanish regions cripple Madrid’s attempts to keep budget deficit target

Plenty of homework for Rajoy to present to partners later this week

Spain is considering raising consumer, energy and property taxes, the government said, as it struggles to reduce a public deficit that may have already exceeded one of its budgeted ceilings for the full year.

Underlining the state of Spanish finances as it negotiates an international bailout for its banks the central government deficit was 3.41% of GDP from January to May, close to an end-year target of 3.5%, Treasury data showed.

Madrid is under intense pressure by nervous debt markets to tame one of the highest public shortfalls in the Euro zone and the government will be hoping to have a new slew of austerity measures to show European leaders at a summit later this week.

The high central government deficit figures were due to early cash transfers of almost 9 billion Euros to Spain's struggling regions had stretched the deficit to 36.4 billion Euros by the end of May, the Treasury said.

Excluding the transfers, which are made each year but were paid early this time to help the cash-strapped regions, the deficit would have been 2.38% of GDP, it said.

The central government deficit, announced on Tuesday, does not include figures from the social security system or the 17 devolved regions.

At the end of the first quarter, and thanks to the payments, the regions were ahead of their targets, though whether that will bring the overall shortfall in line with end-of-year goals will not be known until mid-year regional accounts are published.

With the economy in its second recession in three years slashing the total Spanish deficit from 8.9% of GDP last year to 5.3% this year, as has been pledged by the government, remains a serious challenge.

Prime Minister Mariano Rajoy has announced tax hikes and spending cuts worth around 45 billion Euros, but he had so far resisted calls from the European Union and the International Monetary Fund to increase the value added tax (VAT).