Spanish government greenlights draft budget with record public spending

The plan for 2022 aims to shore up the post-Covid economic recovery with a focus on social policies. Part of the effort will be made possible by EU funds

Prime Minister Pedro Sánchez with second Deputy PM Yolanda Díaz on Thursday.
Prime Minister Pedro Sánchez with second Deputy PM Yolanda Díaz on Thursday.Andrea Comas

The Spanish Cabinet on Thursday approved the blueprint for the 2022 budget, which it described as the largest public spending effort in Spain’s history.

The draft budget, which will go to the lower house of parliament next week, will focus on social policies and release a record investment of over €40 billion, including a big chunk for science. The government is counting on some €27 billion to come from the European Union’s funds to help the country recover from the effects of the coronavirus pandemic.

Speaking after the Cabinet meeting, Finance Minister María Jesús Montero called the expansive spending plan the “budget of a fair recovery.”

“This budget was made so that the recovery will reach everyone and expand the middle class. We need to make progress and be in a better place than we were before,” she said. “Six out of every 10 euros of this budget are earmarked for social policies.”

More than €12.5 billion will go towards youth policies, including housing, culture and study scholarships. Montero said that this figure is twice as large as last year’s and aims to “improve the present and future opportunities of new generations.” Spain has a persistently high youth unemployment rate that is currently around 33%, according to the European statistics bureau Eurostat.

Science also figures prominently, with €13.3 billion going to research and development, innovation and digitalization. Pensions are set to go up around 3%.

The draft budget was approved two weeks later than initially expected due to disagreements between the leftist government’s coalition partners, the Socialist Party (PSOE) and Unidas Podemos. The hurdles were cleared after both partners agreed on a new national housing law and a minimum 15% corporate tax rate for large companies. This tax will affect around 1,070 businesses (less than 1% of the total) and bring the state an additional €400 million in revenue, according to the government, which nevertheless noted that the final rate may undergo adjustments when an expert committee delivers its report on fiscal reform in late February.

Montero said that in all, revenue from tax collection will grow 8% to reach €232 billion. This growth is expected to be fueled by increased revenue from income tax (IRPF), corporate tax, value-added tax and taxes on alcohol and tobacco products. The spending blueprint does not mention any revenue from a plan to start charging fees on all of Spain’s highways next year.

The executive is now hoping that parliament will greenlight the budget plan before December 31 so it can go into effect on January 1.

Macroeconomic forecast

The spending ceiling approved for 2022 is just over €196 billion, a €45-million rise from the previous year. With these resources, the government is hoping to shore up the economic recovery following the coronavirus crisis, which led to record job losses and the biggest gross domestic product (GDP) contraction since the days of the Spanish Civil War in the 1930s.

According to the government’s own macroeconomic forecast presented on September 21, the Spanish economy will grow 7% in 2022, the unemployment rate will go down by more than two percentage points to 14.1%, and the budget deficit will narrow to 5% of GDP from a projected 8.4% this year.

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