CreateTime:2010-09-02 Editor:zjl

SPAIN says its deficit is down sharply thanks to an unpopular cocktail of tax hikes and other austerity measures - good news for a government fighting to ward off fears it might need a bailout like the one that saved Greece from bankruptcy in May.

The Finance Ministry said in a report on Tuesday that through the end of July, the central government's deficit totaled 2.4 percent of gross domestic product, half of what it was for the same period of 2009.

The figures do not include spending by regional governments, which will be key to helping the country meet its stated goal of cutting the deficit from 11.2 percent of GDP last year to 3 percent in 2013.

The report says revenue rose 10.4 percent through July, largely due to a higher VAT rate, a tax on goods and services.

But this is a one-off widely attributed to Spaniards rushing to buy big-ticket items like refrigerators and washing machines before those tax rates rose on July 1.

On the spending side, the government saved money by eliminating a 400 euro (US$500) tax rebate it granted to most taxpayers in 2008 and cutting civil servants' wages by 5 percent as part of an austerity plan approved in May.

But other numbers show the uphill battle Socialist Prime Minister Jose Luis Rodriguez Zapatero still faces as he tries to resurrect an economy that collapsed two years ago after a real estate bubble burst and is now saddled with a 20 percent jobless rate: Tax revenue from businesses is down 9.8 percent in the first seven months of the year.

Zapatero has a difficult autumn ahead of him. Unions plan a general strike on September 29 to protest labor market reforms that seek to make companies less wary of hiring by lowering the cost of firing people. The unions are also angry over government plans to extend the retirement age from 65 to 67 and change the way pension schemes are calculated.