Spain's central bank casts doubt on 2013 budget, deficit

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Published October 04, 2012

| Reuters

Spain's central bank head cast doubt on the government's 2013 budget and deficit cutting plans on Thursday, saying they were based on a too-rosy outlook for the economy and tax revenue.

Central Bank Governor Luis Maria Linde, in his job since June, said most independent forecasts are for a 1.5 percent economic contraction in Spain next year, rather than the 0.5 percent projection in the budget.

He said the government should consider additional measures in order to meet the deficit target.

"This outlook, a fall of 0.5 percent in gross domestic product in 2013, is certainly optimistic in comparison with the outlook shared by the majority of international organizations and analysts, which is around a 1.5 percent fall," Linde said in a speech to a parliamentary budget committee.

Prime Minister Mariano Rajoy sent to parliament on Saturday a tough budget with 13 billion euros in savings -- from spending cuts and tax increases -- which it said would put Spain on track to cutting its public deficit to 4.5 percent of gross domestic product next year.

Spain is the current focus of the euro zone debt crisis, with expectation mounting that the government will soon seek European aid to keep its borrowing costs under control.

A recession has cut into tax revenue and also pushed up unemployment benefit costs. Also, as the country's borrowing costs rise, much of the savings from aggressive cost-cutting have gone to servicing debt.

The government is also taking on additional debt - some of it from European rescue funds - to bailout troubled banks and cash-strapped regional governments.

Linde said the government should make a prudent forecast for tax revenue next year and said the tax-take outlook in the 2013 budget was subject to downside risks.

"The revenue outlook for 2013 is subject to downward slippage risks... If this risk materializes, and is not counteracted through adequate actions in the rest of 2012, this means it will be difficult to reach the 2013 objectives, and added to what is budgeted."

(Writing by Fiona Ortiz; Editing by Toby Chopra)

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