ECONOMY

Spain’s public deficit rises to 3.27% of GDP in first seven months of year

Finance Ministry figures raise doubts over Spain’s ability to meet targets set by Brussels

Finance Minister Cristóbal Montoro (c).
Finance Minister Cristóbal Montoro (c).Zipi / EFE

The combined public deficit of Spain’s public administrations – excluding local councils – rose during the first seven months of the year to €36.443 billion, equivalent to 3.27% of GDP. That’s according to data released on Tuesday by the Finance Ministry. The red numbers that have been racked up until July are 7.9% higher than those registered during the same period last year, and mean that Spain is increasingly unlikely to meet its public deficit target, as set by Brussels, of 4.6% this year.

Spain’s caretaker government is due to approve a decree on Friday to increase company tax receipts by around €6 billion, in a bid to get the country’s finances back on track. However, the public administrations will have to rein in their budgets in the last quarter of the year if they are to meet the target set by the European Commission.

Public administrations will have to rein in their budgets if they are to meet the EC target

For their part, Spain’s regional governments have managed to bring down their deficits by 90.3% during the first seven months of the year, to €830 million – that’s the lowest amount since at least the start of the economic crisis in 2008. This reduction, the ministry explained, was due to the “definitive liquidation of the 2014 accounts with a positive balance for the regions of €7.6 billion, while the 2013 definitive liquidation was in favor of [the regions] for the amount of €1.75 billion.”

The Social Security system – which is the public organism that is prompting most concerns over the weakness of its accounts – registered a deficit of 0.53% in the first seven months of the year, 176% up on the previous year. Both the government and the opposition have called for reforms to the funding sources for the system, but the current political stalemate is making the possibility of a deal unlikely.

The political stalemate is making the possibility of a Social Security deal unlikely

While the ministry highlights “the growth of income from social contributions,” the growth of costs to the system, such as spending on pensions and other benefits, is moving at a faster pace, in part due to the ageing of the population, among other factors.

In July, the European Commission decided to cancel sanctions against Spain and Portugal despite their continuous deficit target misses. The two countries were facing fines of up to 0.2% of GDP, which in Spain’s case would have meant €2.2 billion. But in exchange for waiving the fines, Brussels set tough new deficit targets for Spain and Portugal: 4.6% of GDP in 2016, 3.1% in 2017 and 2.2% in 2018.

English version by Simon Hunter.

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