Borrowing costs outstrip ministerial spending cuts in 2013 budget

Funds destined for ministries to be slashed by 8.9 percent Government to raise extra funds with tax on lottery wins

The ministers address the press on Thursday.
The ministers address the press on Thursday. Sergio Barrenechea (EFE)

The Cabinet on Thursday approved a state budget for 2013 that, despite including ongoing austerity measures to reduce the budget deficit, will push up overall spending as a result of a jump in borrowing costs.

At a joint presentation of the government’s financial blueprint for next year Deputy Prime Minister Soraya Sáenz de Santamaría — who spoke to the press along with Finance Minister Cristóbal Montoro and Economy Minister Luis de Guindos — said that this was a “budget for times of crisis to get us out of the crisis.” The plan, she added, put more emphasis on adjustments to spending than to revenues.

The financial plan for next year includes belt-tightening measures worth around 20 billion euros to meet the deficit target for the central government and the Social Security system of 3.8 percent of GDP.

But the budget sticks by the government’s earlier forecast of a contraction in GDP of 0.5 percent, despite experts putting the figure at about double that.

Under the government’s austerity drive only pensions, school grants and interest payments on government debt are due to rise. But those increases will be sufficient to push overall spending up.

Interest payments alone are set to increase 33 percent, or 9.742 billion euros, to 38.6 billion euros as a result of the increase in the deficit, which has pushed up levels of outstanding public debt.

The budget aims to dispel doubts about the sustainability of Spain’s debt”

State pensions are to be raised by one percent next year, and the government will maintain the practice of topping them up to compensate for the loss of purchasing power as a result of any deviation from the official target set for the year. To pay for the increase, the government will draw down 3.063 billion euros from the pension reserve fund.

Total spending is set to rise 5.6 percent to 169.775 billion euros, while total revenues are programmed to rise 2.7 percent to 175.177 billion euros. About 63 percent of spending will be on social services.

Spending at government ministries is to be slashed by 8.9 percent in order to save 3.883 billion euros, while wages of public sector workers will be frozen for the third year in a row. However, the administration will bring back the Christmas bonus payment for civil servants, which was eliminated this year.

One of the biggest losers in the budget is culture, with cuts in the spending limits of renowned institutions such as the Prado and Reina Sofía museums.

But there was some good news for the beleaguered automobile industry as the government will revive a subsidy system under which owners of vehicles that are more than 12 years old will receive 2,000 euros if they scrap them when buying new ones.

The budget also aims to raise 4.375 billion euros in new taxes, the most eye-catching of which is a levy of 20 percent on lottery prizes of over 2,500 euros. This measure is expected to raise 824 million euros. The tax on capital gains with an investment horizon of less than one year is being increased, while there will be no tax breaks on mortgage payments on the family home.

The Socialists said the government had “not learned from the mistake” of turning the austerity screw tighter

The administration is hoping the increase in value-added tax will yield an additional 6.966 billion euros in 2013.

“The budget aims to dispel doubts about the sustainability of Spain’s debt,” said Montoro.

De Guindos added that the government plans to make two proposals to reform the pensions system, one of which aims to bring the effective retirement age in line with the statutory age by eliminating early and partial retirement. The other proposal will concern the sustainability of the system, with revisions to the parameters for deciding the level of benefits.

He also said that there are plans underway to cut down red tape, in an effort to make the country’s markets more efficient.

The opposition Socialist Party attacked the budget, saying it proved that the government had “not learned from the mistake” of turning the austerity screw tighter on an ailing economy. Socialist economy spokeswoman, Inmaculada Rodríguez Piñero, said the plan presented was a “depression budget” which would neither help reduce unemployment nor succeed in reducing Spain’s public deficit.

The government plans to send the state budget to Congress on Saturday for approval by October 1.

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