Spanish draft budget ups social spending, taxes rich in vote hunt

By Belen Carreño

MADRID (Reuters) - Spain's minority Socialist government rolled out its 2019 budget proposal on Friday, promising to slash the deficit but boost social spending in a bid to please voters who may have to decide on the administration's future as soon as this year.

Failure by parliament to pass the bill could prompt a snap election before the scheduled general ballot in 2020, further exacerbating Spain's tumultuous political environment.

Prime Minister Pedro Sanchez came to power last year after the previous conservative government lost a confidence vote, and needs the backing of Catalan nationalists and other small parties to pass legislation.

This year's 472.7 billion euro ($543 billion) budget bill comes after delays caused by the administration change and the refusal of Catalan parties to back an initial draft.

It also comes after a humiliating electoral setback for the Socialists last month in Andalusia, that has seen the far right grow stronger.

The plan, which faces a first vote in mid-February, envisages a sharp deficit reduction to 1.3 percent of gross domestic product from last year's estimated 2.7 percent and includes higher taxes for the wealthy and big corporations.

But spending on social policies will increase by over 6 percent, or 12.6 billion euros ($14.5 billion), from last year to reach over 57 percent of the total budgeted expenditure.

Spending on pensions will rise 6 percent, transport subsidies 13 percent and student scholarships will get 10 percent more funding.

Budget Minister Maria Jesus Montero said she hoped the government's fiscal plan would help defeat the rise of the far right. "Budgets are a vaccine against the breeding ground with which populism is nourished," she told reporters.

In December, Sanchez already decreed a 22 percent rise in the minimum wage, the biggest in four decades.

Autonomous regions such as Catalonia, which in 2017 attempted to proclaim independence from Spain, will in total receive 6 percent more central funding than a year ago. The government will only provide a breakdown next week, but it has previously said the Catalans will be happy with the budget.

Pablo Simon, political scientist at Carlos III University, said that despite the bill's clear "more spending, more income" message, the government still needs to make it appealing to the Catalans without upsetting other regions.

"We need to see how the government manages to put the story to the public opinion ... whether the idea prevails that this is a budget that raises taxes for the rich and with more social spending, or the idea that a lot is offered to the Catalans. The opposition is going to play this (latter) card," he said.

If the plan is rejected, the government said it would keep enforcing the 2018 spending plan, but it has not ruled out that a snap election may follow.

That would raise the possibility of a right-of-centre government coming to power, in the same mould as in Spain's most populous region of Andalusia where the conservative People's Party allied on Wednesday with centre-right Ciudadanos and received the backing of an emerging far-right party.

The right have stronger centralist preferences than the Socialists who have been open to negotiating a greater degree of autonomy with the Catalan leaders.

(Writing by Andrei Khalip; Editing by Andrew Cawthorne)