MADRID, Sept 16 (Reuters) - Spain's government has proposed raising civil servants' pay by just 0.3 percent for 2010 as it struggles to rein in costs and placate labour unions, a union source said on Wednesday.
A wage agreement is being hammered out between the government and the country's two largest unions CCOO and UGT.
"The unions and the government are meeting tomorrow when we expect the unions to give an answer to the proposal," the source said.
The government declined to confirm the proposal.
"These talks form a fundamental part of the budget and there is strong political will on the part of the government to reach an agreement," a spokeswoman at the prime minister's office said.
The Socialist government has said all labour agreements must be reached through joint talks between the executive and the labour representatives, leading to criticism it is at the mercy of union leader demands.
Spanish wages are indexed to inflation, but although the European Union expects prices to remain flat in 2009, The CCOO has proposed a pay rise of 1 percent for next year.
The government wishes to pass an "austere" 2010 budget through parliament to tame a budget deficit which is expected to have almost tripled by the end of the year from 2008 to almost 10 percent of gross domestic product.
Last week, Prime Minister Jose Luis Rodriguez Zapatero called for solidarity from the Spanish public by accepting tax hikes to pay for a massive economic stimulus plan and compensate for sliding tax revenue.
Zapatero said the budget would raise the tax burden by 1.5 percent of gross domestic product, equivalent to around 15 billion euros ($22.03 billion), though he has still to outline where it will find the money.
"The government is in a tricky position. If wage rises reduce purchasing power, it could stoke deflationary trends in Spain which they need to avoid. But, they also need to cut costs," said economist at RBS Nick Matthews. (Reporting by Paul Day; editing by Stephen Nisbet)