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UPDATE 2-Spain's Salgado defends new measures; no new taxes
July 6, 2011 / 1:47 PM / in 6 years

UPDATE 2-Spain's Salgado defends new measures; no new taxes

* Says Spain’s economy still on track for growth

* Central Bank will closely eye incentive pay in banks

* Labour minister calls bank bonus plans ‘obscene’

(Adds comments from labour minister)

By Fiona Ortiz and Feliciano Tisera

MADRID, July 6 (Reuters) - Spain’s economy is on track for growth this year, and the government does not plan any new taxes as it works to cut the deficit, Economy Minister Elena Salgado said on Wednesday.

Salgado also defended three government initiatives seen as playing to leftist voters, who punished the ruling Socialist party in regional elections in May over pro-market austerity measures and the European Union’s highest jobless rate.

The initiatives are relief for borrowers stuck with mortgage payments on homes seized by banks, a central bank review of incentive pay for banking executives, and central government loans to city halls struggling to pay providers.

With voters unhappy over the Socialists’ deep spending cuts, the measures are seen as aimed at boosting the hopes of Socialist prime ministerial candidate Alfredo Perez Rubalcaba, who is polling 14 percentage points behind centre-right Popular Party leader Mariano Rajoy.

General elections are due by next March, and Salgado said she was against calling early elections.

Government ministers have spoken in recent days of more taxes for banking executives, but Salgado said what the government really wants to do is to make sure that incentive pay does not push bankers into too much high-risk lending.

“We have to be especially careful with bonuses, with incentives for certain acts,” she said in a radio interview.

“The Bank of Spain will oversee incentives given to people working in the financial sector to make sure those incentives don’t increase risk that weighs on the solvency of the financial system in the future,” she said.

Lending in Spain is largely stagnant after a housing bubble burst in 2007, leaving banks with heavy exposure to bad property loans.

With elections due in early 2012, Socialist government officials have suddenly begun attacking the banks.

Speaking at a separate event to the north of Madrid, Labour Minister Valeriano Gomez criticised banks’ bonus culture.

“It does not seem rational to me to ask workers to make sacrifices and take wage cuts while at the same time maintaining such obscene remuneration plans... New ways to reduce these structures must be found,” he said at the event organised by Madrid’s main Complutense University and labour federation UGT.

EUROPEAN SLOWDOWN

Salgado said a slowdown in economic growth in Europe in the second quarter would not knock Spain off track. The government’s official forecast is for a 1.3 percent economic expansion this year, compared with market consensus of 0.8 percent growth.

“I have reports on my desk that show that there is a slowdown in the second quarter, probably in all of Europe, but Spain’s economy will continue to grow and we’ll meet our targets,” she said.

Some experts have said that if growth is tepid this year and falls short of the official forecast, the government will have trouble meeting its target to cut the deficit to 6 percent of gross domestic product in 2011 from 9.2 percent last year.

But Salgado ruled out raising taxes. (Additional reporting by Sonya Dowsett and Manuel Ruiz; editing by Ron Askew and Hugh Lawson)

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