Public deficit for 2015 comes in at 5.2%, exceeding gloomiest forecasts

Finance minister will take corrective action in a bid to contain regional spending

Acting Finance Minister Cristóbal Montoro is ready to take corrective action against the regions.
Acting Finance Minister Cristóbal Montoro is ready to take corrective action against the regions.EFE

Spain’s 2015 public deficit came in at  5.2% of gross domestic product (GDP), according to figures released on Thursday by the National Statistics Institute.

Government sources familiar with the figures had earlier said that this number would be in the 5% range.

The €56.6 billion shortfall means that Spain has exceeded its target of 4.2% of GDP agreed with the European Commission by around €10 billion.

Last year also saw elections at the local, regional and national level, leading to government concessions as a way to attract votes

In early February, acting Prime Minister Mariano Rajoy had talked about a likely deficit of 4.5%.

The difference is mostly due to the deficit racked up by Spain’s regions, and to Social Security expenses that went over budget.

In a bid to contain the regional deficit, acting Finance Minister Cristóbal Montoro is preparing additional control measures that will place conditions on access to financing through the Regional Liquidity Fund (FLA). The ministry has sent out information requests to half-a-dozen regional governments, warning them that he is ready to take corrective action.

Montoro is also contemplating more dramatic steps that would come later, such as slapping regions with fines equivalent to 0.2% of regional GDP, and in extreme cases, intervention by central authorities.

Finance Ministry sources said that part of last year’s gap is due to one-off expenditures in places such as Valencia or Catalonia – where €1.3 billion of previously unreported expenses surfaced in October – and to further undisclosed spending of €200 million by the city of Zaragoza on prison construction and on a tramway project.

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There was another unexpected layout of €2.2 billion on health services.

Still, 2015 was also a year in which economic growth surpassed all forecasts and tax revenues jumped significantly. Given those favorable circumstances, the deficit should have shrunk from 5.8% in 2014 to 4.2% last year.

But 2015 was also an election year at the local, regional and national level, leading to government concessions as a way to attract votes – such as reducing income tax in the middle of the campaign, alleging that Spain had enough margin to do so and still meet its EU target.

Meanwhile, regional authorities delayed budget adjustments with a view to their own elections in May. And the fragmented scenario that emerged from that vote meant that some executives were not up and running until the end of summer, which further delayed the implementation of deficit-reduction measures.

Finance Ministry sources said that regional governments can make up for lost ground this year thanks to improved financing that will mean nearly €10 billion more for them to spend. But the Social Security gap keeps widening as pension expenditures rise without a similar increase in worker contributions to balance out the system.

English version by Susana Urra.

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