Less growth, more spending and doubtful income

Less growth, more spending and doubtful income

The ministers Isabel Celaá (Spokesperson), Nadia Calviño (Economy) and Maria Jesus Montero (Treasury) -by order of intervention- presented yesterday, as an imitation of "three government sopranos", the letter and numbers of the pact signed last week by Pedro Sánchez and Pablo Iglesias, the embryo of the General Budgets of the State for 2019, whose approval would leave expedited the legislature, both for the tenant of Moncloa and for their partner of Podemos.

The ministers outlined the large figures of some Budgets still pending elaboration in a detailed, that is, real. Yesterday, the Government applied itself in two tasks. First: have some figures ready to send to Brussels in October as required by the European authorities. Second: with a few numbers on the table – in the Power Point, the computer program for presentations – send a series of political messages to your customers. Isabel Celaá, the Minister Spokesperson, beyond her economic expertise, was in charge of doing it. The ideas-force that I wanted to convey are summarized in that these Budgets: «1) Shield the Welfare State; 2) Dignify pensions; 3) Eliminate the harmful reforms that citizens have suffered; 4) Recovery reaches families; and 5) They will improve the life of the Spaniards ».

Nadia Calviño, a high European official, a good friend of the European Commission's best friends, is in government to negotiate with the Brussels authorities and obtain the best conditions. It must also be the image of the economic orthodoxy -from a left perspective- of Pedro Sánchez's team. Yesterday he recalled that the tenth anniversary of the start of a crisis that has had a very high cost – he spoke to the Welfare State without giving more details – and focused on explaining that the Budgets for 2019 try to "combine fiscal discipline and struggle against inequality ", that is, to please everyone. To Brussels and the markets, on the one hand, and to the socialist clientele, on the other. His message is that the accounts of Sánchez and Iglesias "comply with citizens" and offer "a redistributive function of the fairer fiscal policy". In addition, they are "sostemibles".

Nadia Calviño acknowledged that Spain will grow 2.3% in 2019, one tenth less than expected, but insists that the Spanish economy is still in the positive phase of the cycle. The minister ignored the warnings from Spanish and international experts, including FMI, about the economic thunderclouds that can be seen on the horizon. The Minister of Economy wanted to show that she is based on optimism, because she announced a primary fiscal surplus -more income than expenses without counting the interest on the debt-, which for budgetary purposes would be a deficit of 1.8%, 0.5 points greater than the one agreed last year with Brussels. In addition, it predicted a significant decline in public debt, which would remain at the end of 2019 at 95.5% of GDP, although the details remained in the air. His budget explanations may provoke some scuffle with Podemos, because he spoke of a reduction in public spending as a percentage of GDP, although in real terms it rises, but it may not be enough for Iglesias and his people, and he also appealed for a "structural adjustment", although in the presented numbers it is not sufficiently clear.

María Jesùs Montero, Minister of Finance, is responsible for solving this sudoku, as her predecessor Pedro Solbes would say, who, in a situation similar to the current one, did not perceive the crisis that was coming. The reality of Montero, said by herself, is that the Government provides the largest expense in history for all Administrations, no less than 515,552 million, a 3.1% increase or 15,711 million more. There is also a record forecast of revenue: 493,239 million euros, 26,438 more than the previous year, equivalent to 5.7% more. All this yields the forecast of a 1.8% deficit. In other words, the Government relies on spectacular increases in revenues that allow it to deal with higher expenditures, something that AIReF – the Independent Authority of Fiscal Responsibility – considers plausible, but not enough independent experts.

The pact with Podemos provides 5.098 million more spending, of which thanks to the technique / budgetary magic, only 1,992 are counted in the "spending ceiling" 1,992, although all will be spent and will have to be paid. The new income derived from the Sánchez-Iglesias agreement totals 5,678 million -4,489 for budgetary purposes-, although some are as ethereal as the 1,200 million of the new tax on digital services, the 850 of the financial transaction tax -as an expense could be deductible- or the 500 million anti-fraud measures. That is, 5,000 million more of spending and 4,489 of income. However, the global figures are more illustrative, because they show the aforementioned 15.711 million more of spending and the extraordinary 26.438 of income -where social contributions and pensions are included- and it does not seem so obvious that it is a very realistic forecast, however much 2018 can end with a record collection -without quotations and other special- of 210,000 million. If in 2019 they grow as the economy would be another 5,000 that add to the 5,000 of new taxes, In total, 10,000. There would still be 5,000 to reach 15,711 and it does not seem easy with an economy that will grow a little less. Maybe "sopranos" do magic.

Yesterday, the risk premium was the only one in Europe that rose, to stand at 119.9 basis points.


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