Wednesday, April 10

Pensions, war spending and debt eat up the 2023 Budget

The machinery to have the 2023 General State Budgets (PGE) in a timely manner begins to move. Even if it’s bumpy. The Government has the challenge of moving from the ‘recovery accounts’ to a roadmap in which income and expenses must be combined to the millimeter to maintain economic momentum without raising suspicions from Brussels.

The European Commission has already expressly asked the Executive to take measures to reduce the structural deficit next year (the one that does not depend on the cycle, but on the fiscal measures adopted by governments). And that only happens one way at a time when raising taxes is ruled out not only because of the economic slowdown, but also because 2023 is an election year.

The Treasury will try a fiscal wink to agree on greater spending on Defense

spending ceiling

The first budget stop will be the approval of the spending ceiling. Sources from the Ministry of Finance trust to have it ready before the end of July. “The Government will not skip the current spending rule, which indicates that this will not exceed the GDP forecast in the medium term, which will be prudent,” anticipates José María Mollinedo, general secretary of the Treasury technicians.

However, the resources of the European funds and the extra collection due to the improvement in the cycle and inflation, anticipate that the levels will remain high after two years of maximums due to the expansionary policies against the pandemic.

Only in theory, the government’s room for maneuver should be wide. There will be less spending due to the withdrawal of the ‘anti-covid’ measures. And employment is picking up strongly with more and more ERTE workers rejoining the labor market. At the end of May there were barely 27,500 left.

soaring income

In addition, according to data from the IGAE, tax revenues skyrocketed until April to close to 86,000 million euros. And the Ministry of Finance calculates that 20% is due only to inflation. A surplus that generates the perfect scenario to take fiscal consolidation measures. Nothing could be further from the truth. “It’s never a good time to adjust.

When things go well, because it is used to spend more; and when things go wrong, because the citizen cannot be drowned, “criticizes María Jesús Fernández, senior analyst at Funcas. Namely. All those resources that the Government will have to prepare its next Budgets will not be used to adjust the deficit. That will come, as they trust from the Executive, by the economic cycle itself. So the extra will go rather to consolidate structural spending.

CPI effect

The trend will continue next year, especially due to measures such as the revaluation of pensions with the CPI.

The mantra that “the purchasing power of pensioners is guaranteed by law” is repeated over and over again in front of those who question the blow that this measure will mean for the public coffers in 2023, with runaway average inflation that not even the most optimistic forecasts come below 6%.

For this year, the budgeted expenditure for pensions pointed to an increase of 7,900 million euros, up to a record of 171,000 million. The figure represents more than 70% of the social spending of the Budgets which, in turn, eat six out of every 10 euros of the total. So with much higher inflation now, the cost next year will be even higher.

According to calculations by the Bank of Spain, the extra blow that the State will have to assume to face the revaluation linked to the CPI will be 12,600 million euros. And that money cannot be used for other items either. Experts are committed to suspending the measure, even if only in 2023, or considering alternatives such as applying it only to the lowest pensions.

Energy crisis

The measures that are consolidated to alleviate the effects of the energy crisis will also take away a large part of the room for maneuver in the face of future shocks. “The feeling is that the Executive prefers to adjust this excess collection by giving greater intensity to these aids, instead of returning it to people with others, such as, for example, the deflation of personal income tax,” explains José María Mollinedo.

This point, in addition, will need to have the counterweight of a better collection. Yes, only the fiscal measures to lower the price of the electricity bill – among them, the reduction of the electricity VAT from 21% to 10%, have already reduced the State’s income by 3,828 million since its implementation last summer, according to data from the Agency Tax.

Interest payment

Another of the items in which a greater expense will undoubtedly have to be assumed will be the payment of interest on the debt. The Airef estimates that the State will have to spend 20,000 million more until 2025 with the impact that the expected rate hike by the European Central Bank (ECB) will have. In fact, new issues are already becoming more expensive, although the Executive trusts in the Treasury’s prudent strategy to save the situation.

Summarizing. Everything indicates that the good run of income will be used to consolidate spending and not to adjust imbalances in a more powerful way.

It is true that the deficit and debt fell in 2021 to 6.7% and 118.7%, respectively. And that the downward path will be fulfilled, leaving the hole at 5% this year. But they are still high levels. Above all because, without adjustment in spending policies, the structural deficit will remain around 4%. “It’s a barbarity. And if the Government does not take additional measures, it will not come down from there, “they insist from Funcas. They do not expect movements in this sense. And it is that including the word adjustment in the electoral year, the last of the legislature, does not seem the most likely option.

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