Brussels requires Spain to revise public deficit upwards

The European Union’s statistics office Eurostat has obliged Spain’s Finance Ministry to revise the estimated public deficit upwards for last year as a result of the government’s decision to delay until this year tax refunds due at the end of 2012.

After the adjustment imposed by Eurostat, the shortfall in the state’s books for last year increases from 6.74 percent to 6.98 percent. The Finance Ministry, headed by Cristóbal Montoro, said Wednesday that the change imposed on the treatment of tax refunds will oblige the department to amend the figures for the historical series, which dates back to 1995.

The secretary of state for the budget, Marta Fernández Currás, said the methodological treatment of tax refunds has been changed in such a way that requests for refunds by taxpayers are recognized as obligations without prior recognition of the validity of such claims by the administration.

The European Commission is expected to grant Spain some leeway in bringing the deficit back within the EU ceiling of 3 percent of GDP as a result of the country slipping back into recession for the second time in four year. Currently, the administration of Prime Minister Mariano Rajoy is committed to doing so in 2014.

It is not clear how much longer Brussels will give Spain to reach the target. A lot will depend on the macroeconomic scenario for the next few years. The government’s official target for GDP for this year is for a contraction of 5 percent of GDP. However, Rajoy last week said the government plans to revise the figure, which most experts believe is unrealistic. The IMF, the OECD and the Commission and the Bank of Spain believe the decline will be close to triple the government’s initial estimate. They also expect unemployment to move closer to 27 percent this year from 26 percent at the end of 26 percent.

Currás said the deficit in the first two months of this year was 23.561 billion euros, equivalent to 2.22 percent of GDP, up from 1.95 percent in the same period a year earlier. The current target agreed with Brussels for the shortfall this year is 4.5 percent of GDP.