The widening of the structural deficit hampers the government’s margin in the event of a protracted crisis or future shocks
The mechanism for timely access to the General State Budgets (PGE) is starting to move. Even if it’s bumpy. The government faces the challenge of moving from ‘collection accounts’ to a step-by-step plan in which income and expenditure must be combined down to the millimeter in order to maintain economic dynamism without arousing suspicion from Brussels.
The European Commission has already explicitly asked the government to take measures next year to reduce the structural deficit (which does not depend on the cycle, but on the fiscal measures taken by the governments). And that only happens one way at a time, which excludes raising taxes, not only because of the economic slowdown, but also because 2023 is an election year.
The first budget stop is the approval of the spending ceiling. Finance Ministry sources are confident it will be ready before the end of July. “The government will not skip the current spending rule, which indicates that it will not exceed the medium-term GDP forecast, which will be wise,” said José María Mollinedo, general secretary of the Treasury’s technicians.
However, European funds’ resources and the extra collection resulting from the improvement in the cycle and inflation expect levels to remain high after two years of maxima due to the expansionary policy against the pandemic.
Only in theory should the government’s room for maneuver should be large. There will be less spending due to the withdrawal of the ‘anti-covid’ measures. And employment is picking up strongly with more and more ERTE employees re-entering the labor market. At the end of May there were barely 27,500 left.
In addition, tax revenues skyrocketed to nearly €86,000 million until April, according to data from the IGAE. And the Treasury Department calculates that 20% is due to inflation alone. A surplus that generates the perfect scenario to take fiscal consolidation measures. Nothing is further from the truth. “It’s never a good time to adjust.
When it goes well, because it is used to spend more; and if things go wrong, because the citizen cannot drown,” criticizes María Jesús Fernández, senior analyst at Funcas. Namely. All those resources that the government needs to prepare its next budgets will not be used to cover the shortage of That will come, as they trust from the Executive, because of the economic cycle itself, so the extra will go rather to consolidate structural spending.
The trend will continue next year, mainly due to measures such as the revaluation of pensions with the CPI.
The mantra that “the purchasing power of retirees is guaranteed by law” is repeated again and again in front of those who doubt the blow this measure will bring to the treasury by 2023, with runaway average inflation that even the most optimistic the forecasts come in below 6%.
For this year, budgeted expenditure on pensions pointed to an increase of 7,900 million euros, to a record 171,000 million. The figure represents more than 70% of the social expenditures of the budgets, which in turn gobble up six for every 10 euros of the total. So with much higher inflation now, the cost will be even higher next year.
According to calculations by the Bank of Spain, the additional blow that the state will have to bear to cope with the revaluation linked to the CPI will be 12,600 million euros. And that money cannot be used for other things. Experts are committed to suspending the measure, if only by 2023, or considering alternatives, such as applying only to the lowest pensions.
The measures being consolidated to mitigate the effects of the energy crisis will also remove much of the room for maneuver in future shocks. “The feeling is that the executive branch prefers to adjust this excess collection by giving more intensity to these tools, rather than giving them back to people together with others, such as the deflation of the personal income tax,” explains José María Mollinedo.
This point will also have to be counterbalanced by a better collection. Yes, just the tax measures to lower the price of electricity bills, including the reduction of VAT on electricity from 21% to 10%, have already cut state revenues by 3,828 million since its implementation last summer, according to data from the Tax Agency. .
Another item that will undoubtedly require a larger expense is the payment of interest on the debt. The Airef estimates that the State will have to spend 20,000 million more until 2025 with the impact that the expected interest rate hike by the European Central Bank (ECB) will have. In fact, new issues are already getting more expensive, although the Executive is relying on the Treasury’s prudent strategy to salvage the situation.
To summarise. There is every indication that the good revenue stream will be used to consolidate spending and not to more vigorously adjust imbalances.
It is true that the deficit and debt fell to 6.7% and 118.7% respectively in 2021. And that the downward path will be fulfilled, leaving the gap at 5% this year. But they are still of a high standard. Especially because without adjustment of the spending policy, the structural deficit will remain around 4%. “It is barbarity. And if the government does not take additional measures, it will not come out,” they insist Funcas. They do not expect any movements in that sense. And it is that the word include adjustment in the election year, the last of the legislature, does not seem the most likely option.
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.
