The president of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero.Efe
The fiscal rules imposed by Europe to ensure the sustainability of public accounts are not in force this year or next. These budget corsets were lifted to combat the consequences of the pandemic and the war in Ukraine. Unlike what happened in the previous euro crisis, Brussels has allowed the fiscal hole to decrease simply with the drop in spending due to covid and the improvement of the economy and, therefore, of income. At the end of 2021, this deficit reached around 80,000 million euros, 6.87% of GDP and the equivalent of three quarters of what is collected by personal income tax. There is still a lot to reduce. But in this way for now there would be no need to undertake cuts or tax increases. However, the European Commission has given a first signal that we must begin to monitor budget developments. Especially when rate hikes are approaching that will make the high accumulated debt more expensive.
Brussels has established a first recommendation for 2023 so that all countries with high indebtedness begin to moderate spending. It is not in any case about cuts, just about containing current disbursements. In addition, member countries often ignore these requirements while the Commission turns a blind eye. Even so, this time they would be linked to the disbursement of European funds if the Community Executive wanted to harden a position that for the moment has been quite flexible. The recommendation is to put a ceiling on the growth of current outlays by removing interest and measures to deal with the energy crisis. These should not increase in 2023 beyond the potential growth of the economy in the medium term. How much does this imply? According to calculations by the Tax Authority, disclosed by President Cristina Herrero in a forum of the EY consulting firm, the increase in spending should be moderated by some 7,500 million, a figure that represents three quarters of the monthly pension payroll.
Instead of raising the budget by some 24,000 million as appears in a report by the institution on public accounts, the Executive could only raise it by 16,500 million. Instead of increasing current disbursements by 4.3%, they would have to grow by nearly 3%. As a consequence, the deficit for next year would remain at 2.7% of GDP compared to the 3.3% that the Fiscal Authority had projected.
If the stability program that the Government has sent to Brussels is taken, the growth of current expenses will stand at 3.7% in 2023. And it should be contained at almost 3%. This means that it should only advance by 14.5 billion instead of 19 billion. In other words, a reduction of 4,500 million in the increase in planned spending, which would cause the deficit to end at 3.5% of GDP and not the 3.9% that the Government now has as its objective.
The pension problem
The problem is that one of the main items of the State, pensions, which represent a third of the total with more than 170,000 million, will grow by around 8%: approximately 6% due to the revaluation with the CPI and the rest due to the increase in the number of pensioners and the effect of substituting some benefits for new, higher ones. If pensions climb around 8%, the other two thirds will have to compensate by growing significantly below 3%. Or said in euros, pensions would rise by about 14,000 million, leaving little room for the rest just when the Executive faces the elections and needs support to approve the budget. It would only have European funds as a margin and increase aid for inflation.
He knows in depth all the sides of the coin.
In 2018, current spending without interest grew by 4%. In 2019, 5.6%. And in 2020, subtracting the expense for the pandemic, it barely rebounded by 1.4%. According to Commission calculations, current disbursements, financed with the national budget and subtracting emergency measures due to the crisis, have been growing by more than 7% last year and this year. In other words, the Government would have to further moderate spending in the next budget, coinciding with the electoral period.
In any case, countries often fail to comply with these recommendations. Community sources explain that surveillance of this will not be strict, given the environment of high uncertainty and that the calculation of potential growth seems highly questionable. The Government will also have European funds to be able to prepare an expansive investment budget, these sources recall. As much as the payment of European funds is linked to the recommendation, it does not seem that the Commission now wants to put a country in trouble. Even so, the Spanish Executive will probably try, at least on paper, to adhere somewhat to Brussels’ demand.
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