California governor against tax hikes to close budget gap

MILAN (Reuters) - California Governor Arnold Schwarzenegger said on Wednesday he opposed tax hikes to close the state's budget gap, projected to be bigger than expected in the next fiscal year.

The former Hollywood action star told reporters he would meet with state lawmakers to discuss the deficit in California, the most populous U.S. state, and how to close it.

California is undergoing its worst economic crisis since the Great Depression, and just four months ago Schwarzenegger and lawmakers were engaged in heated talks on a budget plan to close a shortfall of $24 billion.

The Los Angeles Times reported on Tuesday that that next fiscal year's shortfall would be $14.4 billion, much larger than first forecast. The deficit would be almost $21 billion in the current and next fiscal year, it said. The newspaper cited a report by the state's budget watchdog agency to be released on Wednesday.

"I think it's important not to raise revenues, not to raise taxes. We have to live within our means," Schwarzenegger, a Republican, told a news conference ahead of a congress on the economic role of states and regions worldwide.

Analysts say that so far this fiscal year revenues have been disappointing and the state's economy, which would be the world's eighth largest if California were a country, suggests revenues will weaken further.

The state's unemployment rate is in the double digits and there are signs seen in reduced spending and sales taxes that the recession is pinching the wealthy as well.

The governor's spokesman on the budget at the state's Department of Finance said last week revenues from July through September were $1 billion below projections.

Schwarzenegger had pegged the deficit for the remainder of the current fiscal year at between $5 billion to $7 billion. His finance advisers had previously said the government would see a $7.4 billion gap in the next fiscal year beginning in July.

Schwarzenegger said he had no plans to seek public office after his term ran out next year. He stopped off in Milan, Italy's fashion and financial capital, after a visit to the Middle East.

(Reporting by Ian Simpson, editing by Jackie Frank)