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Thursday, Jan 5, 2012 3:45 PM UTC

Spain Vows To Fight Tax Evasion, Trim Government

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Topics: From the Wires,

MADRID (AP) — Spain’s new conservative government will crack down on tax evasion and trim the public sector in its drive to chip away at a bloated budget deficit, an official said Thursday.

Word of the new measures came a week after the government announced a €15 billion ($19.4 billion) package of spending cuts and tax hikes.

Personal and corporate tax returns will be scrutinized more closely, tax inspectors will visit workplaces more often to ensure workers are being paid through the payroll, and the government is considering setting a limit beyond which some transactions cannot be carried out in cash, government spokeswoman Soraya Saenz de Santamaria said after a Cabinet meeting.

She said the government hopes to raise nearly €8.2 billion in 2012 in extra revenue with the anti-tax fraud initiative.

Saenz de Santamaria also said Spain’s different levels of government — central, regional and local — will be pressed to eliminate a large chunk of the 4,000 or so companies, agencies and other organizations they own. A goal set in 2010 to eliminate 515 of them to save money has fallen far short of expectations, with only 69 dissolved.

The central government will soon convene a commission representing all three of those levels of government to determine the cause of this failure and raise the 515 figure, she told a news conference.

The conservative Popular Party took power the week before Christmas after winning a landslide election win on Nov. 20 and one of its main priorities — besides fighting a 21.5 percent jobless rate — is to make sure Spain doesn’t get dragged into the debt crisis mire that has already forced Greece, Ireland and Portugal into seeking financial bailouts and is now threatening much-bigger Italy.

Though Spain’s budget deficit is higher than the 3 percent threshold that was supposedly part of the euro’s economic framework, it has so far avoided the same sort of bond market pressure afflicting Italy, partly because its overall central government debt burden is relatively low at around 66 percent — Italy’s is around 120 percent. Last week, the government said overspending in Spain’s regions was responsible for most of an upward revision to Spain’s 2011 budget deficit to around 8 percent of GDP from the 6 percent forecast by the last, Socialist government.

The yield on Spain’s benchmark ten-year bonds closed out 2011 at just over 5 percent, lower than Italy’s 7 percent, a rate that is widely-considered to be unsustainable in the long-run. However, in the first few days of the new year the Spanish yield has risen past 5.5 percent amid dismal economic growth forecasts.

Spain has to keep a lid on its borrowings especially with unemployment so high and its regions and the private sector so indebted. Spain crawled out of nearly two years of recession in 2010, but the economy slowed this summer and growth was outright flat in the third quarter of this year.

Earlier Thursday, the new economy minister was quoted as saying the government expects the country’s banks to find up to €50 billion ($65 billion) to shore up balance sheets weakened by exposure to a burst real estate bubble.

Luis de Guindos told The Financial Times in an interview that this had to be done without posing a burden for public finances. That indicates that the government will be loathe to put more money into cash-strapped banks.

He said most of the country’s banks could raise the money through their own earnings, while weaker lenders — such as savings banks called ‘cajas’ — could be absorbed in a new wave of consolidation.

The Bank of Spain says the country’s financial sector holds about €176 billion ($228 billion)in bad loans or other toxic assets from the real estate sector. That is just over half of the sector’s property-related exposure.

In a previous round of restructuring over the past two years or so, Spanish banks have set aside billions in provisions to cover non-performing loans or repossessed property.

De Guindos was also reported as saying that the government plans strict new controls over the budgets of Spain’s 17 semiautonomous regions. He said that under a new law to be passed in March, regional spending blueprints will need approval from the central government before they can be enacted.

More Daniel Woolls.

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