MADRID (Reuters) - Spain's conservatives will propose tax hikes as part of the 2017 budget on Friday, seeking to cut one of Europe's largest public deficits while looking to ease pressure on the regions in a concession to powerful opposition parties.
The minority government must balance complying with EU deficit targets with placating the opposition as it attempts to navigate essential legislation through a hostile parliament.
The People's Party (PP) took power in October after two inconclusive elections. With a parliament split between the traditional opposition, the Socialists, and two newcomer parties, it will need cross-party accords to govern.
The Socialists said on Thursday they would aid the approval of the deficit target in Parliament if the government agreed to raise the minimum wage and relax budgetary pressure on the regions, many of which are led by the opposition.
The Socialists will abstain to give the PP sufficient votes to push the deficit goals through, a spokesman said ahead of cross-party talks due on Thursday afternoon.
However, this is just the first step in a drawn out process to get the already delayed 2017 budget in place. Once the deficit targets are passed, Prime Minister Mariano Rajoy must then convince Parliament to accept the necessary budgetary measures.
Rajoy will propose tax increases on alcohol, tobacco and sugared drinks as well as eliminating corporate tax breaks, a government source said, the latest of a long line of austerity measures which the opposition is likely to resist.
Spain needs to trim the deficit to 3.1 percent of economic output in 2017, as agreed with the European Commission, from an expected 4.6 percent this year, to avoid fines or a freeze on funds it receives from the European Union.
(Reporting by Blanca Rodriguez; Writing by Paul Day; Editing by Ruth Pitchford)