The 2023 Budgets reach Congress

The project of the General State Budgets of 2023 takes the first step for its parliamentary processing. The Minister of Finance, María Jesús Montero, has already delivered to the Congress of Deputies the roadmap with which the Government aspires to protect families and companies from the impact of the crisis and the upward spiral of prices derived from the war in Ukraine.

The new public accounts detailed in the so-called ‘Yellow Book’ are the most expansive in history. And they are based on the forecast that the national GDP will moderate to 2.1% next year, compared to the 4.4% forecast for this year. An excessively optimistic figure in the opinion of the Bank of Spain, which on Wednesday adjusted its forecast for 2023 compared to that of the Government by seven tenths, up to 1.4%.

Despite the doubts generated by the plan, the Executive trusts in the improvement of employment and national demand to support an unprecedented number of public spending without hindering the objective of reducing the deficit from 5% forecast for this year to 3.9 % in 2023.

The task will be complex. Above all because the Budgets are played out in an environment of maximum economic uncertainty and high inflation that has significantly reduced the purchasing power of citizens in recent months. To compensate for this, the coalition government has agreed to a record expenditure of 455,978 million euros in the Budget, to which must be added the 30,000 million that will be received from European funds (the latter do not count as a deficit).

Social spending

According to the agreed roadmap, six out of every ten euros of that figure will go to social spending (266,719 million euros), with special attention to education, housing, dependency and primary care. However, it will be pensions that take the biggest ‘bite’ of this part of the budget, with a revaluation of 8.5% according to the expected CPI.

In total, this item will consume 190,687 million euros of the agreed spending, nearly 20,000 million more than this year and around 40% of total public spending. A figure to which we must add the increase in the salary of civil servants, with a cost in ‘personnel expenses’ estimated at more than 20,500 million euros.

To all this, other items must be added, such as the increase in the Minimum Vital Income (IMV) or the extension of the discount on public transport, as well as the help of 250 euros to rent for young people.

Another important part of the total expenditure will be that which the State allocates to the payment of the public debt, estimated at 31,200 million euros. The three items together (pensions, public salaries and debt), in fact account for 54% of the total public spending proposed by the Government.

But there is more news. For example, the controversial 25% increase in defense spending or the plan to recover 60% of the regulatory base from six months of benefit, which, according to calculations from the Executive, would benefit some 300,000 people.

Income

To finance all this deployment, the Executive is supported by a forecast of non-financial income of 307,445 million euros. Of that figure, 262,781 would come from tax collection, which would come without the need to apply generalized tax increases.

Excluding social contributions, tax collection is expected to increase by 7.7% (18,710 million euros more) thanks above all to the pull of personal income tax and corporate tax, which will also grow by 7.7% until 113,123 million and 28,519 million euros, respectively. VAT revenue is also expected to rise 5.9% to 86 billion, despite the fact that the forecast for private consumption has dropped 1.2 points from the July forecast, from 2.5% to 1, 3%.

For its part, collection from special taxes will rise by 8.2%, exceeding 22,000 million.

Tax news

Although there will be no contractionary policies to increase collection, it must be borne in mind that next year some of the tax innovations will begin to be applied which, although not included in the Budgets, will have an impact on collection for the year. Among others, the new Solidarity tax on large fortunes with which the Executive expects to enter 1,500 million next year (and another 1,500 in 2024), as well as the temporary taxes that will be applied to the energy sector and to the banks that, according to the Bank of Spain, will imply a temporary improvement in the public deficit of 0.3 percentage points of GDP.

The Budget project does include another series of measures anticipated by the Treasury, in this case to benefit the lowest incomes. Among them, the increase from 18,000 to 21,000 euros in the limit exempt from declaring. The rise of one point, up to 27%, of the tax for capital income between 200,000 and 300,000 euros is also incorporated. Likewise, the tax for capital income of more than 300,000 euros is raised to 28%.

The plan also includes a reduction of five percentage points in personal income tax for the self-employed by modules and a cut from 25% to 23% in the type of Companies applied to SMEs that invoice up to one million euros. Finally, the drop in VAT is collected at the super-reduced rate for feminine hygiene products, to which are added others such as contraceptives.

With the figures already on the table in Congress, the growth in revenue compared to the previous year (the aforementioned 18,710 million euros) will remain below the 26,344 million euros that social spending is expected to grow compared to the previous year. It is true that social security contributions must be added to the income figure. But the historic deployment of spending in the face of higher inflation paints a picture in which, in addition to the discretionary policies of the Government, the smooth running of the cycle will be key to maintaining the deficit adjustment committed to in Brussels.