PUBLIC FINANCES

Unemployment costs leave government’s budget forecasts in shreds

Spending on benefits up 5.4 percent in first seven months of the year when the government expected a fall

The figures included in this year’s budget by Labor Minister Fátima Báñez and Finance Minister Cristóbal Montoro for spending on unemployment benefits didn´t add up, experts said at the time. The latest data released Tuesday by the Labor Ministry show that the experts were right. In the first seven months of the year, jobless claim outlays rose 5.4 percent to 18.455 billion euros when Báñez and Montoro predicted a fall of 5.0 percent.

The figures were published at the same time as those for jobless claims in August, which showed an increase for the first time in five months to 4.625 million.

As a result, with the economy deep in recession, jobs being destroyed and the number of workers affiliated with the Social Security system falling to the lowest level since the crisis broke, the scenario for the government’s public accounts has become even more complicated at a time when the central government’s deficit in the first seven months of the year has already exceeded its target for the whole year of 4.5 percent of GDP.

After five years of intense crisis, the system has not needed to draw on the reserve fund"

The administration’s misguided forecasts for spending on pensions and unemployment in part explains the blowout in the deficit as well as the rationale behind the Popular Party government's decision to increase the value-added sales tax and cut the benefit entitlements of those out of a job.

Unemployment benefit spending in July alone rose 8.05 percent from a year earlier to 2.593 billion euros, while the number of new claims were up 34.4 percent from a year earlier, suggesting it will be hard for the government to correct the blowup later in the year. Also, the cut in unemployment benefits to from 60 to 50 percent of the base for Social Security contributions approved in a decree in July will not take effect this year.

Further bad news on the financial front also emerged on Tuesday when the secretary of state for Social Security, Tomás Burgos, warned that the government may have to draw on the reserve fund to meet future state pension payments. The fund has 67 billion euros.

“After five years of intense crisis, the system has not needed to draw on the reserve fund, and our intention is to use available mechanisms to manage the [state’s] commitments, and the reserve fund is one of those mechanisms,” Burgos said.

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