Finance Minister María Jesús Montero delivers the latest public bills of the legislature with historic spending in an environment of economic uncertainty
The 2023 General Government Budget project takes the first step towards its parliamentary processing. Finance Minister María Jesús Montero will deliver to the Congress of Deputies this Thursday the roadmap through which the government aims to protect families and businesses from the effects of the crisis and the upward price spiral caused by the war in Ukraine.
The new public accounts described in the so-called “Yellow Book” are the most comprehensive in history. And they are based on the forecast that the national GDP will moderate to 2.1% next year, compared to the 4.4% forecast for this year. An over-optimistic figure in the opinion of the Bank of Spain, which on Wednesday revised its 2023 forecast by seven-tenths from that of the government, to 1.4%.
Despite the doubts raised by the plan, the executive is relying on improving employment and national demand to support an unprecedented level of government spending without the target of cutting the deficit from this year’s 5% forecast to 3.9% in 2023, in the way.
The task will be complex. Especially as budgets are set in an environment of maximum economic uncertainty and high inflation that has significantly reduced the purchasing power of citizens in recent months. To compensate for this, the coalition government has agreed to a record expenditure of €455,978 million in the Budget, to which must be added the €30,000 million that will be received from European funds (which do not count as a deficit).
According to the agreed roadmap, six out of ten euros of this will go to social expenditure (EUR 266,719 million), with special attention to policies in the fields of education, housing, dependency and primary care. However, it will be pensions that will take the biggest budgetary ‘bite’, with a revaluation of 8.5% according to the projected CPI.
In total, pensions will consume €190,687 million of the budget, nearly €20,000 million more than this year and about 40% of total government spending. A figure to which we have to add the salary increase of civil servants, with a cost item on the budget item ‘personnel costs’ of more than 20,500 million euros.
Another important part of the costs will be the part allocated by the State to the payment of the national debt, estimated at 31,200 million euros. The three items together (pensions, government salaries and debt) represent 54% of the total government expenditure proposed by the government.
To all this we have to add other things such as the increase in the Minimum Vital Income (IMV) or the extension of the discount on public transport or the help of 250 euros for rent for young people. Similarly, the plan recovers 60% of the regulatory base from the six-month benefit that, according to the Executive’s calculations, would benefit approximately 300,000 people.
To fund all this commitment, the Executive is supported by a non-financial income forecast of EUR 307,445 million. Of that figure, 262,781 would come from tax collection, which would come without the need to apply general tax increases.
Excluding social contributions, tax collection is expected to increase by 7.7% (up €18,710 million), mainly due to the attractiveness of personal income tax and corporate income tax, which will also grow by 7.7% to €113,123 million and €28,519 million, respectively. VAT revenues are also expected to increase by 5.9% to 86 billion, despite the private consumption forecast falling 1.2 points from the July forecast, from 2.5% to 1. , 3%.
For its part, special tax collection will increase by 8.2%, more than 22,000 million.
While there will be no shrinking policy to increase collection, it should be borne in mind that a number of fiscal innovations will be implemented next year which, although not budgeted, will have an impact on collection for the year. Among other things, the new Solidarity Tax on large fortunes with which the Executive expects to introduce 1,500 million next year (and another 1,500 in 2024), as well as the temporary taxes levied on the energy sector and on the banks that according to the Bank of Spain, will imply a temporary improvement in the government deficit of 0.3 percentage point of GDP.
The Budget project includes another series of measures foreseen by the Treasury, in this case for the benefit of the lowest incomes. Among them, the increase from 18,000 to 21,000 euros in the limit is exempt from declaration. The increase of one point, to 27%, in the tax on capital income between 200,000 and 300,000 euros has also been incorporated. Likewise, the tax on wealth income over EUR 300,000 is increased to 28%.
The plan also includes a five percentage point reduction in the personal income tax for the self-employed through modules and a reduction from 25% to 23% for the Enterprise type applied to SMEs that invoice up to one million euros. Finally, the VAT reduction is collected at the much-reduced rate for feminine hygiene products, to which others are added, such as contraceptives.
With the figures already on the table in Congress, collection growth from the previous year (the aforementioned 18,710 million euros) remains below the 26,344 million euros that social spending is expected to grow compared to the previous year. It is true that social contributions must be added to the income figure. But the historical use of expenditure in the face of higher inflation paints a picture in which, in addition to government discretionary policies, the smooth running of the cycle will be crucial for maintaining the deficit adjustment set in Brussels.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
