Fri. Jan 18th, 2019

Budgets collect the largest increase in expenditure since the year of Zapatero's E Plan | Economy

Budgets collect the largest increase in expenditure since the year of Zapatero's E Plan | Economy



The Finance Minister, María Jesús Montero, registered the draft General State Budgets for 2019 in Congress on Monday. They are pro-cyclical, expansive accounts and with the largest increase in public spending since 2010, when the Zapatero Executive scheduled the controversial Plan E, a millionaire investment plan sponsored by the G20 with the intention of spurring the economy in full crisis. That year saw the largest increase in public spending in the last 30 years.

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Sánchez has decided to increase spending to allocate more resources to social items. His intention is to heal the pending wounds after the dramatic financial crisis that erupted a decade ago. The items of dependency, housing or investments go up more than 40%. There is also a broad social program whose icing is a plan against child poverty and aid for families most in need. In total, the State will spend more than 345.358 million euros, 5.3% more than the previous year.

These Budgets are born, also, three months late. The Executive should have presented the project at the end of last September, as stipulated in the Constitution, but political instability and tension in Catalonia have served as an argument to postpone them.

Although all the governments insist on commenting on the increase in the items that define their policy, in reality the budgets leave little room for action. Pensions, with a rise of 6%, to reach 153,000 million, eat almost half of all resources. The departure to pay the salary of officials, which grows by 3.9%, to 23,372 million, also takes a good piece of the pie, although somewhat less than the interest to pay the bulky public debt, whose endowment amounts to 31,449 millions. If to these items the transfers to autonomous communities, municipalities and other public companies (more than 261,900 euros, 6.3% more), the margin of political action of the Budgets is limited. That is, pensions, transfers to the territorial administrations to finance themselves, interest on the debt and salaries of officials, eat a good part of the Budget.

The Treasury has built the 2019 budgets on a deficit target of 1.3% of GDP instead of the 1.8% it had originally planned, but the blockade of the PP and Citizens in Congress have prevented it from smoothing the fiscal path. That means that the government will have to make an adjustment of about 12,000 million euros this year. How will it be done? The Department headed by María Jesús Montero has projected record revenues of more than 227,356 million euros, 9.5% more than the previous year. In real terms, the increase with respect to the 2018 harvest amounts to 20,000 million.

About half of this increase comes from the improvement of the economic cycle: the economy is expected to continue growing (2.2%) and that the increase in prices leads to an improvement in revenue. On the other hand, there are the new tax measures, which will report 5,650 million, according to the Government's calculations. The Treasury has scheduled tax increases and the creation of new ones. Among the increases highlights the rise in income tax for those who earn more than 140,000 euros and corporation tax for companies that bill more than 20 million euros. These measures will only affect 0.5% of taxpayers and 0.7% of companies.

But in addition, Montero will approve two new taxes: the one that will tax the digital activities, known as the Google tax, and the one of financial transactions, which will be applied to the purchase and sale of shares of large companies.

The third leg of this phenomenal increase in revenue comes from a change in the calculation of the VAT settlement, which will allow in 2019 about 5,000 million of revenue that actually comes from 2020. An accounting trick that will allow the Treasury to consider 13 months of income from VAT for the new Immediate Information System (SII), a digital tool to pay the VAT that was launched in 2017 by the former Finance Minister, Cristóbal Montoro. It is to be seen whether the European Commission allows the modification of the accrual criterion in Cashier's favor

Finally, these Budgets are born without sufficient political support to get ahead. The Government of Sanchez has not guaranteed or the votes of its main partner of Government, United We Can, which detects 11 breaches in the government agreement signed last October. Sánchez is also involved in a frantic negotiation with the Catalan separatists.

To iron out harshness, the Government has committed that it will allocate 18% of the infrastructure investment in Catalonia. In this way, it complies with the provisions of the Statute, which holds that Catalonia must receive an investment equivalent to its weight in the national economy.

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