Spain takes aim at regional debt

A Spanish bill aimed at limiting deficits run up by the country's regions would punish those that fail to meet their targets, Finance Minister Cristobal Montoro says.

"It's legislation that entails a balanced budget," Montoro told a press briefing on Tuesday.

"The entire public sector is subject to it, and it also includes a procedure to sanction" those that fall short of their targets.

New right-leaning Prime Minister Mariano Rajoy said earlier on Tuesday that regional governments' budget deficits would be equal to 2.3 or 2.4 per cent of gross domestic product (GDP) in 2011 - nearly double their 1.3 per cent target.

He said last week that the regions, still reeling from the 2008 property bubble implosion, were to blame for €15 billion ($23.9 billion) out of the €20 billion in national budget slippage in 2011. Spain's overall public deficit is expected to shrink to about 8 per cent of GDP in 2011, down from 9.3 per cent in 2010 but far short of the 6.0 per cent target.

Rajoy, who vowed on Tuesday to launch urgent reforms of the budget, labour market and banks by mid-February, has already started on a programme of spending cuts and tax increases to squeeze €40 billion out of the budget.

Regional governments, which failed by a wide margin to meet their 2011 deficit-cutting targets, must be included in the budget reforms, the premier said.

"We will ask the regional governments to meet their deficit goals for 2012," Rajoy said. "We are ready ... to come to their aid but in that case it would have to be in exchange for a programme that will guarantee those results," he said.

- AAP