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Spanish Central Budget Deficit Halves at Tax Income Surges

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Aug. 31 (Bloomberg) -- Spain’s central government budget deficit narrowed by almost half in the first seven months of the year as tax revenue surged and spending cuts took effect.

The shortfall narrowed to 2.44 percent of gross domestic product, or 25.8 billion euros ($32.7 billion), compared with 4.73 percent, or 49.8 billion euros, a year earlier, the Madrid-based Finance Ministry said in a statement on its website today. Tax revenue rose 35.6 percent from a year earlier.

The overall budget gap, which was 11.2 percent last year, also includes the regional administrations’ shortfall and the balance of the social security system, which had a surplus of 0.58 percent of GDP for the same period, the Labor Ministry said in a separate report today.

Spain, which emerged from an almost two-year recession in the first half, is cutting spending and increasing taxes to rein in the third-largest public deficit in the euro region. The government trimmed public workers’ wages by 5 percent in June and raised value-added tax in July as part of the deepest austerity program in at least three decades.

Pressure on the budget from rising interest costs has eased since the publication in July of stress tests on banks helped reduce the yields on Spanish bonds. Still, compared with German debt, the extra yield investors demand to hold Spanish bonds surged to 194 basis points today from a two-month low of 137 basis points on July 27.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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