ANDALUSIA BALANCES BUDGET WITH GOS AND EU HELP

UNCLAS MADRID 004405

SIPDIS

TREASURY PASS TRACI PHILLIPS

E.O. 12958: N/A
TAGS: ECON EFIN SP
SUBJECT: ANDALUSIA BALANCES BUDGET WITH GOS AND EU HELP

REF: A. MADRID 4385

B. MADRID 3715


1. Summary: The Andalusian budget which was presented to the
regional Parliament the final week of October contains EUR
24.5 billion (USD 31.7 billion) in outlays, an increase of
10% over 2004. Andalusia has already received the funds
necessary to pay for its budget expenditures from the central
government and EU, paying only 50% of expenditures from tax
income. Shortly after winning the March 14 elections, the
Socialist government in Madrid assumed the Socialist regional
government of Andalusia's outstanding debt, ensuring that the
Andalusian region would be supportive during national budget
negotiations. End Summary.


2. EconOff and Econ Analyst met October 28 with Andalusian
regional Secretary of Economy Antonio J. Avila Cano to
discuss the Andalusian budget for 2005 and find out if the
Andalusian government would be pressing for more handouts
during the national budget debates. According to Avila, the
balanced budget presented to the regional parliament projects
EUR 24.5 billion (USD 31.7 billion) in expenditures, and
increases overall spending by 10%. Andalusia's robust
economy is expected to grow by 7% (compared with 2-3%
nationally). Roughly 20% of the total will be spent on
public investment and 80% on current programs.

Investment
--------------


3. The Andalusian budget for 2005 calls for spending
increases of 8% in current programs and 24% in public
investment. The regional government is particularly proud of
the planned increases in investment. The investment line
item includes budgetary increases of: 30.5% in R&D, 45% in
infrastructure, 20% for universities and 56% on environmental
projects. Key infrastructure projects include an extension
of the AVE high speed train to Granada and Malaga, a new
cross-regional highway, a second terminal for Malaga airport
and mass transit projects in Seville, Granada, Malaga and
Cadiz.

Half of Funding from Transfers
--------------


4. Even with recent growth, Andalusia remains one of Spain's
poorer autonomous regions, and continues to receive
significant budgetary funding from central government and EU
sources. Only 40% of Andalusia's tax budget outlay is paid
for by tax income collected by the tax authorities in
Andalusia, and 10% from taxes levied directly by Andalusia.
Direct transfers from the central government account for 30%
of regional income, and EU transfers for infrastructure
supply 10% of the budget. The final 10% of income comes from
transfers from various agreements between the Andalusian
government and individual ministries. (Note: Andalusia's per
capita GDP of 69.4% of the EU average qualifies for EU
structural funds. Once Andalusia's per capita income reaches
75%, predicted in 2008, it will lose this funding. An
additional benefit Andalusia recently received from the
national government was a payment of it's regional debt of
EUR 2.5 billion (USD 3.24 billion) that accumulated between
1997 and 2001 when the Socialist regional government did not
accept the national Popular Party government's regional
financing scheme and continued to spend more money than it
received in transfers.


5. Comment: The Andalusian government receives sufficient
transfers from the national government and the EU to maintain
a balanced budget. Unlike the Catalan regional government
(ref B),the members of parliament from Andalusia are
unlikely to make demands on the national government that will
effect the overall national budget debate, especially since
the national Socialist government subsumed Andalusia's
regional debt shortly after winning the March 14 elections.
Andalusia provided the greatest number of new Socialist seats
in Parliament, accounts for 14% of Spanish GDP and 17% of the
population. In the 2005 national budget, 13% of
infrastructure investment will go to projects in Andalusia.
The national government is keen to take care of the needs and
wants of this most Socialist of autonomous regions.
ARGYROS