Rajoy says 2012 deficit came in below seven percent of GDP

Prime Minister Mariano Rajoy said Wednesday that Spain’s public deficit last year came in below seven percent, a performance that exceeded the expectations of experts.

“During a recession such as Spain is going through, I can tell you that Spain’s public deficit was below seven percent,” Rajoy said in his State of the Nation address in Congress.

Spain’s target for the shortfall in its finances for 2012 was 6.3 percent of GDP, excluding the European bailout to recapitalize the banks. However, experts have estimated that the figure was more likely to be over seven percent. The deficit last year was nine percent of GDP.

Rajoy said the country had managed to reduce its structural deficit -- the shortfall that excludes the effects of the economic cycle -- by 3.5 percentage points, and as such had met the commitment agreed with the European Commission. “This has been an unprecedented adjustment in the history of Spain,” the Popular Party (PP) leader said. According to initial official figures, Spain’s economic output declined 1.4 percent last year.

The premier said the initial budget adjustment planned for last year was 16.5 billion euros, but was forced to increase this to 21 billion because of the recession, with additional revenues generated by the hike in the value-added tax rate introduced at the start of September last year.

No green shoots, no passing clouds or early springs; the reality is terribly harsh”

He also noted that state had managed to keep the deficit in check despite an unexpected rise in unemployment, which caused the Social Security system to suffer a deficit last year of around 10.5 billion euros, about one percent of GDP.

“We have reduced the deficit despite the fact that non-discretional outlays such as unemployment benefits and the inevitable increase in interest payments on public debt -- over which we have no control -- have increased considerably,” he said.

Despite the progress made on the deficit front, Rajoy warned “there is a long road ahead over the next few years” to balance the budget.

The PP leader noted that close to six million people were out of work last year and identified reducing unemployment as the main task facing the government. “The road toward creating jobs is long,” he said.

Rajoy rejected the idea that the domestic economy had improved sufficiently to allow a relaxation of the government’s austerity drive. “No green shoots, no passing clouds or early springs; the reality is terribly harsh,” he said.

The prime minister announced his government plans a new wave of reforms, such as allowing freelance workers and small companies with annual revenues of under two million euros to delay paying the value-added tax they have charged their clients until they themselves have been paid. He said the measure will take effect as of the start of next year.

One of the worst culprits in delaying payments to their suppliers are the country’s public administrations. According to the ATA, an association that represents freelance workers, the public administrations owe some 4.811 billion euros to their suppliers, with the average delay in payment amounting to 148 days, compared with 95 days in the private sector.

Rajoy said the government also intends to provide relief on Social Security payments for companies that provide temporary work to the under thirties. The jobless rate for this sector of the working population is around 55 percent. In the case of companies with over 250 workers, the reduction will be 75 percent, while other companies will be completely exempt from paying Social Security.