“We have to prepare for the worst, but hoping it doesn’t happen.” Of the two proposals on which the sentence pronounced a few weeks ago by the Vice President of Economic Affairs is based, Nadia Calvinoto illustrate the Executive’s starting position in the face of the uncertainty that surrounds everything that may happen between autumn and winter, the Government has chosen to ignore the former and rely on the latter when designing its State’s general budgets to 2023.
With the harsh winter knocking on the doors, Putin’s threat to close the gas supply tap to Europe fully in force and Europe’s main economy (Germany) assuming an immediate future of economic recession, the Government has decided to design its Budgets for 2023 pretending all those risks are not going to materialize. The draft accounts for 2023 are based on a historical public spending ceilingpresent a new record for social spending and, as the Minister of Finance, María Jesús Montero, has underlined, only contemplates reductions in spending in two items, one of them unemployment benefits because the Government is convinced that unemployment is going to fall and that the improvement in benefits for those unemployed for more than six months is not going to increase spending on that item.
As the Government sees it, the budget project will be able to absorb the historical increase of 8.5% that pension spending will experience due to the deviation from the CPI, the extra cost derived from updating the salaries of public employees and the increase of staff from the public employment offer, and the historical growth of public investment that will go from 8,900 million euros to 11,867 million, the highest figure of state investment ever recorded. Also the entire package of social spending measures agreed at dawn from Monday to Tuesday with Podemos and that will involve the creation of three new social benefits, a check of 1,200 euros a year for families with children under three years of age and substantial improvements both of the Minimum Vital Income, which will rise like pensions, as well as unemployment benefits for people who have been unemployed for more than six months.
And all this will be compatible, in the story transferred this Tuesday by María Jesús Montero, with the fulfillment of the restrictions on public spending imposed on Spain by Brussels to guarantee prudent budget management and with the fulfillment of the objective of reducing the deficit until 3 .9% to which the Executive has committed despite the suspension of fiscal rules. Specifically, the European Comission recommended (or imposed, depending on how you look at it) to the Government that primary spending should not grow above the medium-term potential GDP of the economy, a formula that offers a certain margin for laxity, but which the Treasury says it has complied with because that primary spending will grow by 1.5% and it is understood that the medium-term potential growth of the Spanish economy will be 3.2%, partly because the Government is convinced that European funds will contribute 2.6 points to the potential growth of the economy between now and 2031.
Expense not contemplated
The point is that there are certain expense accounts that are not in the budgets, but that it is very likely that they will end up being. Basically, those close to €14 billion in subsidies and fiscal incentives that the Government has been approving this year in the three packages of measures that it has carried out to mitigate the consequences of the crisis and that have not been included in the budgets. There are the reduction of 80% of the tax charges on the electricity bill, the recently activated reduction to 5% of VAT on gas or the bonus of 20 cents on a liter of fuel.
The Treasury has already warned that it would not include these measures in the budget project. In the first place, because the budgets are prepared on the premise of the regulations that will be in force on January 1, 2023 and these measures expire on December 31, 2022. Second, because the Government is analyzing their eventual extension and it could happen that they be extended only partially, so their cost could be lower.
Treasury, however, has saved a cushion to meet this cost. The revenue forecast for 2023 foresees about 30 billion more than those planned for 2022. As of August, the collection had already contributed 27,000 million, so that projection seems more than prudent.
The cataract of fiscal income obtained in the last two years on account of inflation has convinced the Government that it can sustain its public spending policies without fearing an excessive deviation of the deficit. The question is whether those revenues will be structural.
At the moment, apart from the policies, the rise in civil servants’ salaries and the rise in rates will make the cost of operating the State Administration more expensive by 3,000 million euros compared to last year.