The draft state budget unveiled in Congress Tuesday by Finance Minister Cristóbal Montoro projects that interest payments on the country’s debt will exceed spending on the public workforce’s wages.
Financial spending is expected to rise 5.3 percent to 28.876 billion euros, with the country’s outstanding debt expected to climb to 79.8 percent of GDP from 68.5 percent last year. The budget document attributed this rise to the “effects of the economic crisis.”
The government expects yields on the debt it sells to remain at levels of around those of February, when the average rate on the 10-year bond was 5.12 percent. The budget estimates the Treasury will make gross issues of debt of 186.1 billion euros to cover maturing debt and “new financial needs.”
As announced on Friday, the budget contains savings of 27 billion euros in order to cut the budget deficit to 5.3 percent of GDP from 8.5 percent last year. “First the deficit, second the deficit, and third the deficit,” Montoro said. Outlays of government ministries have been cut by 16.9 percent. The finance ministry described the budget as “extraordinary in terms of the reduction in public spending and increase in revenues as a result of the extraordinary situation Spain is going through.”
The government forecasts a contraction in GDP of 1.7 percent, with the jobless rate rising to 24.3 percent. At a news conference after the presentation in Congress Montoro described the budget as “neutral for economic growth.”
However, the budget includes a cut in spending on infrastructure of 22 percent to 11.368 billion euros, while outlays on civil research and development are projected to shrink by 25 percent.
The budget includes a controversial amnesty for tax dodgers, which the administration hopes will raise 2.5 billion euros. Tax inspectors on Monday described the measure as “unethical” and “contrary to the Constitution.”
The main opposition Socialist Party said Tuesday that it would present amendments to the entire budget presented by Montoro, which it described as “deeply unfair.”
“This is not [the budget] Spain needs to generate wealth, create employment and to get out of the crisis,” the Socialist’s secretary for institutional relations and regional policy, Antonio Hernando, said in an interview with state radio station RNE. The Socialist spokeswoman in Congress also lambasted a budget proposal that she described as “severely punishing the Spanish population.”
Despite higher unemployment, the budget projects a fall in unemployment benefits of 1.235 billion euros to 28.5 billion euros. Spending on programs to get people back to work are budgeted to fall 21 percent, while training outlays will drop 34.3 percent.
The government payroll is expected to increase 1.3 percent to 27.340 billion euros.
Total cuts in spending by the central government amount to 18 billion euros. The government expects to increase revenues by 12.3 billion euros, with corporate tax receipts seen increasing by 5.3 billion euros.
Value-add tax receipts are expected to fall 2.6 percent to 47.691 billion euros as a result of the crisis and the continuation of the super-reduced rate of 4 percent applied to new home sales.
The budget for the royal family has been cut by 2 percent to 8.26 million euros. One of the few government departments to escape the ax was the Superior Sports Council, whose budget was increased 13.6 percent to 192.7 million euros. The Anti-doping Agency will receive 5.54 million euros, a 6.3 percent increase.