MADRID (Reuters) - Spain needs to increase tax revenues to protect its public services and make further efforts to cut its budget deficit to ensure a lasting economic recovery, the International Monetary Fund said in a report on Tuesday.
Spain has "turned the corner" after a deep recession, the IMF said, adding that private consumption and business investment were improving, as were labour market trends, in a country where one in four of the workforce is unemployed.
"We expect the recovery to continue over the medium term," the IMF said in its annual review of the Spanish economy.
The IMF called on Spain to rein in its rising debt and large deficit, however, saying this was vital to a sustained turnaround. Spain's government forecasts the country's ratio of public debt to gross domestic product (GDP) will reach 99.5 percent by the end of 2014.
Measures to whittle down the deficit should be gradual so as to not drag on growth, the IMF added.
It recommended increasing indirect tax revenues, by raising environmental levies, for instance, and reducing preferential treatments on some areas of value-added tax (VAT).
"To protect public services for current and future generations, revenues need to increase," the IMF said.
Government sources have previously told Reuters more products and services would be subject to the standard VAT rate of 21 percent, as part of a sweeping tax reform.
The IMF said there was also scope for Spain to gradually cut corporate income tax to promote growth, but warned there was less room for big reductions in personal income tax, which Prime Minister Mariano Rajoy plans to cut next year.
The number of people registered as jobless in Spain fell sharply in April, and unemployment rates have inched down slightly since Spain came out of recession in the third quarter of last year.
The IMF said more needed to be done to help the unemployed improve skills through better training services. It said Spain should also strike a better balance between the terms of permanent contracts and precarious temporary contracts.
(Reporting by Sarah White; Editing by Julien Toyer and Keiron Henderson)