MADRID, May 22 (Xinhua) -- The Bank of Spain encouraged the Spanish government to "review and redefine the tax basket" to promote growth in the medium term, the central bank said Tuesday in its annual report.

"There is room to increase the efficiency of public spending and redirect its composition towards those items with the greatest impact on productivity," the report said.

"As for revenue, a revision and definition of the tax basket should be considered towards structures that are more favorable to boost growth in the medium term," governor of the Bank of Spain Luis Maria Linde added in the report.

Linde also points out that the Spanish tax system has many tax benefits, several exemptions and deductions that "may lead to distortions on efficiency".

The document also addressed other scenarios related to current Spanish issues, such as pensions, unemployment and inequality.

The public subsidy system would have to deal with the aging of the population, he said, stating that if the income of the Spanish Social Security does not grow, it will be impossible to maintain the current replacement rates of pensions.

The Bank of Spain highlighted that inequality had been reduced due to a lower unemployment rate and dynamism in job creation.

Employment will be the key to reduce inequality, the Spanish central bank said, while at the same time, it called for improvements in the employability of those with less training.