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Spain to pass reforms, trimmed budget with eye on economic aid

MADRID--Spain was set to announce economic reforms and a tight 2013 budget on Thursday, aiming to avoid the political humiliation of having Brussels impose conditions on any request for an international bailout.

Some ministries could see their budgets slashed by up to 40 percent, Spanish media said, as Prime Minister Mariano Rajoy's battle to reduce one of the eurozone's biggest deficits is made still harder by falling tax revenues in a recession.

“We know what we have to do, and since we know it, we're doing it,” Rajoy said on Wednesday as street protests in Madrid and secession talk by the northeastern Catalania region compounded his government's problems.

“We also know this entails a lot of sacrifices distributed ... evenly throughout Spanish society,” he said while visiting New York to attend the U.N. General Assembly.

Details are to be announced at a news conference starting at around 3 p.m. (1300 GMT) following a cabinet meeting.

Thousands of anti-austerity demonstrators demanding that Rajoy resign gathered for a second night on Wednesday near the parliament building, which was guarded by hundreds of police. Protests on Wednesday were peaceful after a march on Tuesday ended in clashes with police.

Reforms intended to win over skeptical investors and control spending are likely to include a new tax oversight body as recommended by Brussels, curbs on early retirement, new taxes on greenhouse gas emissions and stock transactions, and scrapping some tax exemptions.

Business daily Expansion, citing official sources, said the government would save up to 1.5 billion euros (US$1.9 billion) by weeding out corporate tax breaks, including reinvestment incentives and exemptions on foreign earnings and dividends.

According to Juan Jose Rubio Guerrero, president of the Independent Forum of Fiscal Analysts, tax breaks are worth 38 billion euros in Spain.

Wage freezes for public employees will also be extended into 2013, trade union sources said.

Cuts in department budgets would range from 4.2 percent at the justice ministry to 30 percent at agriculture, while Industry Minister Jose Manuel Soria said his own ministry would see its budget cut by 40 percent, Europa Press said.

Other media said the public works ministry would reduce spending on infrastructure by nearly a quarter, while the culture ministry budget would be cut by a third.

Spain, the eurozone's fourth largest economy, is at the center of the crisis. Investors fear that Madrid cannot control its finances and that Rajoy does not have the political will to take all the necessary but unpopular measures.

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Protesters shout during a demonstration near the Spanish Parliament against austerity measures announced by the Spanish government in Madrid, Wednesday, Sept. 26. Spain was set to announce economic reforms and a tight 2013 budget on Thursday, Sept. 27, aiming to avoid the political humiliation of having Brussels impose conditions on any request for an international bailout. (AP)

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