The Government faces the legislature, with a narrow budget

The new Government's economic team will have a very narrow margin to prepare their accounts. Especially if it is taken as a reference to the agreement signed b

The Government faces the legislature, with a narrow budget

The new Government's economic team will have a very narrow margin to prepare their accounts. Especially if it is taken as a reference to the agreement signed by the PSOE and we Can. This promises spending increases substantial. However, the tax increases planned are clearly insufficient to fund these disbursements and, in addition, to reduce the public deficit at the pace required by Brussels. All this in the full slowing-down and without that in 2019 it has corrected the budget hole. A decade after the outbreak of the crisis, still stands at 2.2% of GDP according to the Tax Authority, or 2.4% according to the Bank of Spain. This is this: some 30,000 million gap between expenses and income, of which more than half come from pensions.

The accounts that are facing the new cabinet in its first year can be calculated to stroke thickness. The Executive has provided for tax increases “do not fall in middle class and women workers” for an amount of 5,000 million. There include the of Societies, income TAX on high incomes, diesel, the rate Google and the levy on financial transactions. You would have to add a new increase in the minimum wage, which would yield about 1,000 million in Social Security contributions. However, the European Commission has already said when he appreciated the previous budgets that were not approved such estimates seemed optimistic. In addition, it is yet to see to what height of the year come into force. Rates as the Google or financial are facing difficulties to be applied. And these figures provide some 800 million for measures in the fight against fraud, something that the experts do not consider it to be budgeted.

Debt and operations

Public Administrations

Debt

In percentage of GDP

Spain calls on the EU to the rescue for the banking sector

120

100,9

with 97.8

100

80

62,7

60

40

Begins

to swell

real estate bubble

to Explode the financial crisis

20

35,0

0

March

1995

March

2008

March

2015

Sep.

2019

Expenses and revenues of the State

millions of euros

600.000

Expenses

501.497

501.688

500.000

442.491

400.000

471.002

422.204

Revenues

390.992

300.000

200.000

100.000

0

2007

2012

2018

Forecast

Source: The bank of Spain and Ministry of Finance

THE COUNTRY

Debt and operations

Public Administrations

Debt

In percentage of GDP

Spain calls on the EU to the rescue for the banking sector

120

100,9

with 97.8

100

80

62,7

60

40

Begins

to swell

real estate bubble

to Explode the financial crisis

20

35,0

0

March

1995

March

2008

March

2015

Sep.

2019

Expenses and revenues of the State

millions of euros

600.000

Expenses

501.497

501.688

500.000

442.491

400.000

471.002

422.204

Revenues

390.992

300.000

200.000

100.000

0

2007

2012

2018

Forecast

Source: The bank of Spain and Ministry of Finance

THE COUNTRY

Debt and operations

Public Administrations

Debt

Expenses and revenues of the State

As a percentage of GDP

millions of euros

Spain asked for

the EU to the rescue

the bench

600.000

Expenses

501.497

501.688

500.000

120

442.491

100,9

with 97.8

100

400.000

471.002

422.204

80

Revenues

390.992

300.000

62,7

60

200.000

40

Begins

to swell

real estate bubble

to Explode the financial crisis

100.000

20

35,0

0

0

March

1995

March

2008

March

2015

Sep.

2019

2007

2012

2018

Forecast

Source: The bank of Spain and Ministry of Finance

THE COUNTRY

on the other hand, with an economy that is cooling down, the cycle could provide in the best of cases, about 12,000 million more to the revenues of the government. Thanks to rates are incredibly low, the savings in interests of the State could reach 2,000 million, according to numbers from the Tax Authority. Being generous, the new Government would be in total with about 18,000 million of margin.

however, only pensions are to rise by 7%. With a departure of about 150,000 million, means about 10,000 million of expenditure for the year. And the rise of the salaries of the officials can exceed 3,000 million. Remaining to target many expenses in social policy to which the Government has pledged: housing, dependence, suppression of copayments health, paternity leave, aid to single-parent families, the social bond of the gas... Also, a rise in R & D. And it lifted some of the restrictions that have the local authorities to make investments, reducing their surplus. The communities are already devoting more resources to education and health. And the proliferation of ministries will mean an added pressure on your accounts when you have to each holder demanding more money for his portfolio. You are right, it seems that a good part of the margin would have been exhausted.

MORE INFORMATION

The Tax Authority looks unlikely that the Government will comply this year with the goal of deficit Sánchez emphasizes the economic profile of his cabinet, The reform of the Constitution, Zapatero will determine the Budgets for 2020 Brussels asks Spain not to spend 22,000 million, which will save interest

Only that, in addition, Brussels asks that this year measures are taken to reduce the budget hole to 8,000 million euros. To do this, claiming that Spain spend all the increments of the levy and the savings in interest. That is, if it strictly complies with Brussels, the budget would not allow for anything more except for the revalorization of pensions and salaries of civil servants. Calviño will have to renegotiate the adjustment path to be able to earn some margin, taking advantage of that, in Europe, calling for fiscal stimulus to revive the activity. Although Spain is not one of the countries that have fiscal space, and it takes six years without making adjustments. To make matters worse, this year has entered into force, article 135.2 of the Constitution, which gives weight to the constitutional to the budgetary recommendations of the Commission. Modifying them requires that the decision to go through the Council of european leaders.

And should not be face Brussels and the ECB: with 200,000 million that Spain has to refinance a year, it would be enough with a spike in the premium of 50 points to raise debt in around 1,000 million euros.

“The government program has some generic objectives that if you put all in motion to reach at least 50,000 million. There are to understand them as long-term objectives. But to finance them is not enough to raise taxes on the rich and prosecute the fraud. The amount that is needed for a progressive agenda, including Social Security, is much higher,” says Ignacio Zubiri, professor of Finance, University of the Basque Country.

The public accounts four years

If you do the math looking at an entire legislature, the margin seems narrow. Especially if you take into account the aging of the population, which will push upward on the public finances. Let us start from that all your expenses can climb the same thing that grow the economy because, in principle, that what will fund the increased revenue that comes with growth. However, the Government has promised to raise various items over and above what would the activity to equate those with Europe. Wants to take the health of 5.9% of GDP to 7% in four years. And the education of 4% to 5% in six. Only the GDP is something that grows. And, in consequence, the goal posts will be moving. According to the IMF, the Spanish GDP will be in the 1.4 billion euros in 2024. Therefore, the cost will amount to approximately 14,000 million by rubric. What you will require extra income.

Now, it's not done from one day to another. Will have to raise it year to year. So education will cost approximately 2,300 million extra a year and the health of some 3,500 million. This last shooting alone with force by the pressure of aging. The minimum income would need a one-time disbursement of about 3,000 or 4,000 million, according to the proposal of the Tax Authority. And dependency, about 6,000 million over the legislature. Not encrypted, among other chapters, the creation of a park public housing; improve access to services and infrastructure in Spain's empty, or the aid of the electric car.

The main departure from the State, the pension will also grow more than the economy including inflation. By three effects. One: the revaluation of benefits. Two: the increase of pensioners living longer and each time have a larger number in the cohort that is retiring. And three: the replacement of pensioners by others with a career best and, therefore, charge more.

pension Reform

In the past few years have been frozen almost all the costs in order to cover the increase of pensions. The reform of 2013 intended to contain this increase with revaluation of 0.25% and cutting down the initial rendering for improved life expectancy. Its repeal, as promised in the agreement of the PSOE and we Can, it could cost you in the legislature up to 0.8 points of GDP, according to a rough estimate of Fedea produced by the Source, Garcia and Sanchez. Given these figures, the new minister of Social Security, José Luis Escrivá, you will need to examine how limited these increases. From 2023 the retirement of the baby boom will start to put pressure on the public finances.

“need more income. But for society to accept them it is necessary to legitimizing before gaining efficiency and eliminating waste. The tax increase you have to do it in a gradual manner and taking into account the limitations imposed by globalization,” explains Zubiri.

however, according to own calculations of the Treasury, the bulk of the rises in tax will affect only 0.5% of taxpayers and 0.7% of companies. “If you think that you need to enter more, you have to reform the areas where they are truly collected: VAT, income TAX, self-employed, taxation green...”, says the economist José Carlos Díez.

And economic growth matter: “While borrowing to 0.4% at 10 years provides some room for manoeuvre, there is concern that persistent low rates of growth in Europe. To continue in that way, Spain could not come off much, which would end up eroding their perspectives tax,” says Emilio Ontiveros, president of Afi.

José Ignacio Conde-Ruiz, from the Complutense, how essential are reforms and not get rid of them: “Spain cannot afford another legislature more without reforms designed to modernize in order to adapt the economy to the global challenges: the aging of the population, the digital revolution and climate change”.

Updated Date: 11 January 2020, 09:00

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