Next year’s budget sees public debt matching GDP

Spain’s outstanding public debt next year is projected to rise to close to the size of the economy, while retirees will receive only the minimum increase in their state pension, according to details of the 2014 draft state budget delivered on Monday to Congress by Finance Minister Cristóbal Montoro.

Debt as a percentage of GDP is expected to rise to 99.8 percent from an estimated 94.2 percent this year, above the average for the European Union and the highest ratio for Spain since 1909, according to the International Monetary Fund’s historical series.

According to the government’s Growth and Stability Plan submitted to the European Commission in April, outstanding public debt was not expected to match GDP until 2016.

As a result of the projected increase, the Treasury’s gross debt emissions next year will rise from 207.174 billion euros this year to a record 243.888 billion in 2014. Interest payments on outstanding debt next year will amount to 36.59 billion euros, equivalent to 3.5 percent of GDP.

The government last week said the budget is based on a growth forecast of 0.7 percent, compared with an estimated deficit for this year of 1.3 percent. The total overspend in Spain’s public administrations is targeted at 5.8 percent of GDP.

Retirees are due to receive the minimum rise in their pensions next year of 0.25 percent established in the reform approved by the Cabinet last Friday. Since inflation is expected to exceed that amount, the hike means an effective loss of purchasing power.

The budget does not include a forecast for the consumer price index for next year. However, the macroeconomic framework on which it is based estimates the deflator for private consumption in nominal GDP of 1.5 percent, a rough estimate of inflation. This would mean a loss of spending power for pensioners of 1.25 percentage points. Average annual inflation in Spain since the introduction of the euro is 3 percent.

Spanish cinema suffered another heavy blow, with subsidies for the industry cut by 12.72 percent

The reform, which sets a maximum annual increase of 0.25 percent plus inflation, takes account of both revenues and outlays within the Social Security system and other factors such as life expectancy in order to ensure its sustainability.

Spending on contributory pensions next year has been budgeted at 112.102 billion euros, an increase of 5.4 percent over this year. Including non-contributory benefits, the Social Security system will receive an allocation of 127.483 billion euros, up 4.9 percent from a year earlier. The maximum base for Social Security monthly contributions has been raised 5 percent to 3,596.90 euros. Despite this, the budget projected a fall in revenues from contributions of 3.9 percent.

Consolidating spending in the budget for next year is estimated at 423.227 billion euros, a rise of 3.7 percent. Payroll costs are projected at 21.301 billion euros, which represents a fall of 0.5 percent compared with this year, reflecting the government’s decision to extend the freeze in the wages of civil servants.

The government will continue to take the ax to public investment for next year, with the allocation of 8.706 billion euros representing a fall of 9.7 percent over 2013.

“We can’t have more public investment; we have to attend to other priorities such as social spending,” Montoro said.

The allocation for the Royal Household was cut by 2 percent to 7.77 million euros, the fourth year in a row in which it has been reduced. The prime minister’s gross annual salary was frozen at 78,185 euros, the same level it has been at since 2010. The wages of Prime Minister Mariano Rajoy’s government members were also frozen, with Deputy Prime Minister Soraya Sáenz de Santamaría due to receive 73,486 euros and other Cabinet ministers 68,981 euros.

Spanish cinema suffered another heavy blow, with subsidies for the industry cut by 12.72 percent to 55.03 million euros. That comes on top of a decrease of 22.7 percent last year. The industry is already struggling to come to grips with piracy and a fall in the number of people going to the cinema, partly due to entertainment being placed in the top VAT bracket of 21 percent by this government.

The money set aside for museums was frozen at around 131 million euros, with El Prado to receive 39.11 million and the Reina Sofia 33.23 million. The allocation for music and dance was raised from 68.5 million euros to 86.2 million.