-The governor of Bank of Spain, Pablo Hernández de Cos, considers that there are "significant" risks of non-compliance with the income forecasts contemplated in the Budgets for 2019. This was stated on Monday in his appearance in the Congress of Deputies, convened to analyze the public accounts presented by the Government of Sanchez.
"The project assumes an income growth of slightly over 8%, which is subject to very significant downside risks," said Hernández de Cos. And he has mentioned up to four reasons why he expects the collection to grow less than what the Socialist Executive foresees: one of them is that the additional VAT month that the Treasury wanted to compute to settle the accounts can not be accounted for at the time of meet the public deficit. This month it stopped collecting for the installation of a new computer system to liquidate the VAT, and the Treasury intended to be computed in the year 2019, which would mean an improvement in the collection of about 5,000 million euros. However, Brussels already pointed that figure to 2017, and is not expected to count it again.
Secondly, "Budgetary forecasts incorporate elasticities higher than historical averages", Cos pointed out. The normal thing is that with the growth of the GDP that is predicted the revenues grow a 5%, and not the 6.9% that the Government predicts once the trick of the new computerized system of the VAT is suppressed.
Third, Cos believes that the revenue projection for tax increases is "subject to high uncertainty, especially in the new tax figures." Especially if they also materialize the economic risks that are emerging on the horizon. Fourth, he notes "a potential delay in the entry into force of the measures".
Consequently, according to the Bank of Spain's forecasts, the public deficit will be around 2% of GDP at the close of 2019, far from the objective set forth in the Budgets. It will not be possible to achieve even 1.3% painted in the Budgets because PP and Citizens forced the Government to maintain the previous path of fiscal consolidation. Neither does the 1.8% deficit originally intended by the Sánchez Executive. The governor added that the 2% deficit does not take into account neither the delay in the approval of the tax measures, nor the risk that the tax increases end up entering less due to the greater economic slowdown or the uncertainty surrounding the capacity collection of the new figures, that is, the Google and financial rate.
Regarding the forecast of growth of the economy, Cos has stressed that the collection in the Budgets, located at an increase of 2.2%, seems reasonable. However, it has hinted that the Bank's forecast is likely to be revised downwards with respect to that 2.2% that it predicted already in December. And it has affected two reasons. On the one hand, "the global economic slowdown is accentuating, particularly in the euro area, which presents risks to the downside on the macroeconomic scenario of the Budgets and on the forecasts of the Bank of Spain," he said.
And, on the other hand, he highlighted that the Bank has prepared its growth forecasts without taking into account all the measures included in the Budgets. Only the already announced expenses were computed as the improvement of pensions or increases in salaries of officials. But the income measures were not contemplated. Once the latter are incorporated, the deficit will be reduced to 2% instead of 2.4% projected only with expenses. And that adjustment of four tenths for the fiscal rise, once applied its effect on the economy, could make the forecast of growth also reduce slightly whenever the deficit really goes down, explained Cos.
Finally, the governor has insisted that the structural deficit – that which is calculated once the effect of the economic cycle is subtracted– will not correct again. This means that the debt to the GDP will only be reduced slightly thanks to the growth of the economy. And that, therefore, public finances are not being prepared to face a scenario of slowing down of the economy and aging of the population. The debt leaves Spain "very exposed to the markets" and "will not allow fiscal space to respond with countercyclical policies in an adverse situation," he warned.