Spain's draft 2023 budget bolsters social and defence spending

By Belén Carreño

MADRID (Reuters) - Spain's cabinet on Tuesday settled on a 2023 draft budget after tough negotiations within the leftist coalition that concluded with increases in social and also military spending, and the extension of free rail travel passes.

Ahead of regional and national elections set for 2023, the junior coalition partner, far-left Unidas Podemos, has pushed hard for clear signals in the budget to the left-wing electorate, such as aid to families and taxes on the wealthy.

Economy Minister Nadia Calvino stressed fiscal responsibility was at the core of the budget, as well as "social justice, modernisation and economic efficiency."

One of the star measures announced is the extension through 2023 of free passes for short and medium-distance train journeys, at a cost of 700 million euros.

Budget Minister Maria Jesus Montero said the government would examine data, including the potential CO2 emissions reductions by people switching cars for trains to determine whether to make the measure permanent.

The government will weigh extending other measures to combat the impact of the Ukraine war on energy prices and inflation, such as the 20-cent rebate on petrol, at the end of the year, she added.

The governing Socialist party and Unidas Podemos have already announced tax and spending increases for next year over the past weeks and public workers' wage hikes.

The budget, which must still be approved by a parliament in which the government lacks a majority, includes 25 billion euros of the European Union's COVID pandemic recovery funds.

On Monday, economy minister Nadia Calviño projected GDP growth of 2.1% in 2023, lower than the previously announced 2.7%. A 3.9% deficit and debt-to-GDP ratio of 115.2% for 2023 remain the same as forecast in July.

The EU suspended its edict that countries keep their deficits below 3% during the pandemic, but Spain expects a 6% higher tax take, partly linked to inflation, to help it along the path of fiscal consolidation.

Spain agreed during its hosting of the NATO summit in June to boost defence spending from 1% to 2% of GDP by 2029, in part using the hike to modernise military equipment, prioritising Spanish companies for contracts.

That pledge caused conflict within the coalition and was blamed for the delay in its approval, with Unidas Podemos securing agreements for an improvement in more childcare benefits, family leave and higher health and education spending in return.

(Reporting by Belén Carreño and Inti Landauro; Editing by Clarence Fernandez, Aislinn Laing and Bernadette Baum)