As government officials continued talks on a second rescue package for Greece with visiting foreign auditors Tuesday, the top envoy to Athens from the International Monetary Fund said that cuts to public spending were crucial, noting that there was no more scope for taxation on an austerity-weary public.

“One of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes,” IMF mission chief Poul Thomsen told reporters in a conference call. Referring to the Fund’s latest report on Greece, Thomsen said reform efforts had fallen “well short” of expectations but that it was too early to to confirm whether new austerity measures would have to be taken in 2012. He stressed however that any additional measures should “be on the expenditure side.”

His comments came as government figures showed that the budget deficit in November was 20.5 billion euros, a high figure but just within the revised target of 21 billion euros set by foreign creditors.

Thomsen added that a voluntary bond swap -- dubbed “private sector involvement” (PSI) and currently being discussed between government officials and private holders of Greek debt -- was also crucial for fiscal recovery.

Finance Minister Evangelos Venizelos, who has also repeatedly emphasized that the PSI program is key to Greece’s recovery, Tuesday stressed the importance of boosting growth in the depressed economy.

Talks with visiting European Commissioner for Regional Policy Johannes Hahn focused on “the sector of public investment, the sector of structural programs,” Venizelos said, adding that his aim was to “unite these in a common approach that gives hope and prospects, because the great problem of the Greek economy is disappointment.” Greece’s greatest need, he said, was “to see that there is a future ahead of us, that there are prospects. This will mobilize efforts and will mobilize capital.”

IMF and EU auditors are scheduled Wednesday to meet Prime Minister Lucas Papademos who is subsequently expected to convene a cabinet meeting to discuss the progress of negotiations with auditors and the crucial PSI program.

Papademos met with President Karolos Papoulias Tuesday but the men made no statements after the talks.