Spain’s Castilla-La Mancha to Shrink Deficit by Budget Cuts

Spain’s region of Castilla-La Mancha, run by the People’s Party that polls suggest will win control of the central government in November, vowed to cut the nation’s highest regional deficit by 2012 without raising taxes.

Castilla-La Mancha, which had a budget gap of 6.5 percent of gross domestic product last year, will slash spending by 1.7 billion euros ($2.4 billion) to achieve a deficit of 1.3 percent of GDP next year, President Maria Dolores de Cospedal told reporters today in Toledo, a city close to Madrid. Cospedal is a high ranking member of Spain’s PP, which took over the region from the Socialists after local elections on May 22.

Spain’s 17 semi-autonomous regions manage more than a third of public spending, including health care and education, playing a crucial role in the nation’s effort to reduce the euro area’s third-largest shortfall to 6 percent of GDP this year from 9.2 percent in 2010. Moody’s Investors Service last month cited fiscal slippage by the regions as a reason for putting Spain’s Aa2 rating on review for a downgrade.

Castilla-La Mancha’s plan relies mostly on spending cuts, according to a document released by Cospedal’s office, without providing details. Hiring in the public sector will be frozen next year as will be all new infrastructure projects, the document says. Teachers will be requested to teach two hours more a week in high school and subsidies for unions are to be terminated. Several commissions and agencies are to be scrapped, including Castilla’s competition commission, its tourism agency, its office in Brussels and the local ombudsman.

Spending Cuts

The measures also include cutting down on public building maintenance, control of fuel used by public vehicles and calls made to mobile phones, as well as printing restrictions to save ink. Staff will be reorganized within region-owned buildings to reduce renting expenses. Vehicles will be sold and properties disposed of and leased back.

PP officials say they would do a better job than Socialist Prime Minister Jose Luis Rodriguez Zapatero in proving to investors Spain can avoid following Greece, Portugal and Ireland into needing a bailout. The opposition party supports the Socialists’ plan to amend the constitution and include a “principle of budget stability” on Sept. 2.

Regions Overshoot

The regions have typically overshot deficit targets, forcing the central government to compensate with deeper cuts. The region of Catalonia, Spain’s richest with an economy the size of Portugal, aims for a budget gap of 2.66 percent of GDP this year, compared with a shortfall of 3.86 percent in 2010.

Extremadura may post a budget deficit equivalent to 6.81 percent of its gross domestic product this year, Efe newswire reported today, citing Antonio Fernandez, the regional finance chief.

Castilla-La Mancha’s deficit already exceeded 4 percent of GDP in June, Cospedal said, adding that the PP inherited “a ruin” from the previous government. The region is negotiating with banks to pay suppliers to whom it owes more than 2.5 billion euros. The region’s debt amounts to 6.1 billion euros, or 16.9 percent of GDP, according to the Bank of Spain.

In the center of Spain and famous as home to the fictional character Don Quixote, Castilla-La Mancha accounts for about 3 percent of Spain’s economic output, a similar proportion to Greece’s weight in the euro region.

Socialist belt-tightening implemented since last year as the government cut wages, froze pensions and raised taxes has fueled popular resentment. The PP would win 47.6 percent of the vote if national election were held now, compared with 35 percent for the Socialists, ABC newspaper reported on Aug. 7, citing a poll.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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