ECONOMY

Spanish government delays budget plans to gain negotiating room

Popular Party resists pressure from Ciudadanos to rush budget talks in lead-up to Christmas

Spain’s minority Popular Party (PP) government will extend the application of the 2016 budget to buy itself more time at the negotiating table, sources at the Finance Ministry have said. With the PP facing a tough battle to get its budget passed in a hostile Congress, the party has slowed the process down and now is aiming to present its 2017 budget plans at the end of January or the beginning of February, the idea being the government will pass a decree allowing the 2016 budget to remain in force until then.

Finance Minister Cristóbal Montoro faces an uphill battle getting the 2017 budget passed.
Finance Minister Cristóbal Montoro faces an uphill battle getting the 2017 budget passed.KIKE PARA

But the decision to extend the 2016 budget won’t stop the salaries of government workers going up if the PP gives the all-clear to such a rise. The PP will also be able to adjust pension payments or hike corporate taxes or special taxes on items such as alcohol and tobacco.

The government’s announcement to extend the 2016 budget comes against a backdrop of difficult negotiations with Spain’s center-right Ciudadanos party, which reached agreement with the PP this summer to support its minority government in Congress.

The government is between a rock and a hard place

Ciudadanos leader Albert Rivera has called on the government to raise more revenue by cutting spending on regional administration, an overhaul of company taxes, and clawing money back from people who benefited from the PP’s 2012 tax amnesty, which barely raised half of the €2.5 billion in back taxes and instead shed light on at least €25 billion estimated to be hidden away in offshore accounts.

And with Brussels calling on Spain to attack its structural deficit by making cuts of €5.5 billion, Ciudadanos has been piling pressure on the government to include its proposals in a package of measures that must be presented to Brussels by early December.

But Finance Minister Cristóbal Montoro tried to reduce the tension on Monday. “The government has enough time to sort out all these issues,” he said in reference to the approval of Spain’s expenditure ceiling, the distribution of the deficit among Spain’s autonomous regions and the 2017 budget.

“They should relax and stop stressing out,” said Montoro, alluding to Ciudadanos.

The PP government is currently in no hurry to finalize its budget plans. The finance minister is well aware he will have to fight to get his spending proposals passed, with the largest opposition group in the Spanish Congress, the Socialists (PSOE), already saying they will vote against the draft 2017 budget.

Even the support of Ciudadanos won’t guarantee the passing of the budget, and the PP will be looking for support from the Basque National Party and the Canaries Coalition.

Adding to the difficulties is the rapidly approaching Christmas season. The two houses of Congress are not in session in December and January and although the bill could be pushed through if absolutely necessary, the PP does believe the situation is urgent enough, especially given the all-important expenditure ceiling has yet to be approved.

The PP now expects to finalize its budget in late January or early February

The 2017 budget will also have to take into account demands from Brussels for cuts of €5.5 billion, or 0.5% of GDP, so that Spain can meet its public deficit target of 3.1%. However, the government has also said it will not raise income tax or sales tax, and has promised Cuidadanos it will boost spending. That leaves it between a rock and a hard place.

The PP will also have to make some concessions in the form of social welfare spending to gain the support of the Socialists, as well as offering something to nationalist parties.

English version by George Mills.

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