The Government clings to its deficit targets despite the cut in GDP forecasts for 2022 and 2023

The Government already has its spending ceiling for 2023 and the ban is open for negotiations to have budgets next year. The setting in the Council of Ministers of the highest non-financial spending limit of public administrations in history was accompanied this Thursday by two announcements: growth forecast cut and the deficit is maintained. It is the second time in three months that the Executive has had to make an identical announcement. The macroeconomic projections for 2022 and 2023 that were available at the beginning of the year have been left on a dead letter due to the impact of the war in Ukraine and the energy and inflation crisis that it has caused.

First, the GDP. The First Vice President and Minister of Economic Affairs, Nadia Calviño, updated after the Government meeting the new projections of the evolution of the economy for next year, which will serve as a framework for the drafting of the public accounts. Calviño assured that, although she maintains the evolution of the economy at a growth of 4.3% for this year –in April it already lowered it from 7%–, the next one will go from the projected 3.5% to 2.7%. Eight tenths less growth, in line with the adjustments that different international organizations have been applying to their forecasts for Spain.

Second, the deficit. The Minister of Finance, María Jesús Montero, once again reaffirmed the Government's deficit path. She already did it in April, when, despite the cut in GDP for this year, she reaffirmed her objective of a 5% gap between expenses and income. She did it again this Tuesday, when, after the Government cut growth for next year, she once again maintained the goal of ending that year with an imbalance of 3.9%. Macroeconomic forecasts are cut but the deficit line is maintained.

The Government breathes one more year with the oxygen balloon of Brussels by keeping the excessive deficit rules suspended. These stability rules set by the European Commission force the different countries to maintain a fiscal imbalance below 3%, two points less than the forecast for this year in Spain. However, although these regulations are suspended, Montero maintains, whenever he has the opportunity, that although there is no "mandatory objective", there will be "a reference rate". "The rules are still suspended but not the fiscal responsibility," Montero assured this Tuesday.

The health crisis caused by the pandemic had a full impact on Spanish accounts just when they had managed to return to that 3% limit. Now, the Executive does not contemplate meeting that deficit obligation again until 2025, when it is expected to reach 2.9%. Meanwhile, the debate is open in Brussels on the objective of the stability rules, although there are voices that already advocate recovering the limits on fiscal imbalances after the pandemic.

Two weeks ago, the EU Economy and Finance Ministers (Ecofin) they advocated applying a "prudent" fiscal policy and moving from the global stimuli of the pandemic to the path of fiscal discipline, to deal with the spiral of inflation. "On the fiscal side, it is important to embark on the path towards a prudent fiscal policy, leaving behind the global stimuli that we applied during the pandemic," said the economic vice president of the European Commission, Valdis Dombrovskis, at a press conference after the meeting of EU Economy and Finance Ministers.

Also in Germany the voices of austerity have returned that had been silenced in response to the health crisis. Finance Minister Christian Lindner, of the liberal wing of the coalition government, advocated at the beginning of the month in the draft of the country's budgets for returning to the "brake" on public debt. "The Government has decided to act again within the debt brake. With this we ensure the capacity to act, we relieve citizens and companies and we invest in the future of our country," said the Ministry of him.

The European Central Bank has likewise once again alluded to controlling the deficit when he presented last week the new mechanism to control the risk premiums of euro countries, especially those of the south. The requirements to be able to access the TPI, as has been announced, include that the countries are not in a situation of excessive deficit. While these rules remain relaxed for the time being.

In the absence of specifying what the new fiscal control system in Europe will look like when the systems are activated again, the Government intends to show its intention to keep the deficit under control. The imbalance skyrocketed in 2020, when it reached 10.2%, a level not seen since the 2012 financial crisis. In 2021, part of that problem was corrected to 6.8%, which was even better than expected by the Executive, which assumed that it would still be above 8%.

The Government has found an ally to be able to redirect public accounts: tax collection. The improvement so far in the economy has meant that, without having approved major measures to increase income and despite having launched reductions in the electricity bill, the collection figure has reached record levels. Last year saw the highest number of tax revenues in history and, so far, growth has remained at a significant level in 2022.

Until May, the latest data recorded by the Tax Agency, the increase in tax collection was 19%. Or what is the same, 13,400 million euros. Thanks to this increase, the Government has already seen the bulk of the cost compensated in just five months of the two decrees that have been approved in the face of the inflation crisis, in March and June. Both added a forecast cost of 15,000 million euros. This, together with the fact that last year ended with a lower deficit than expected, has given room for maneuver for aid plans. The new taxes announced by the Government are called to help this margin. The tax on extraordinary profits to banks and electricity companies must be announced before the end of this week and it is expected that they will give the State 3,500 million euros.

Montero avoided specifying on Tuesday what the increase in spending announced in the new ceiling approved by the Government will be used for, of some 2,000 million compared to what was approved for the 2022 Budgets. However, he suggested that some of the public spending items that existed in the budgets of this course could disappear for the next one. It would apply, for example, to extraordinary measures linked to the pandemic, since the health situation has changed. Although new ways of spending are included, such as the announcements made in terms of Defense, the increase in spending on pensions or the possible effects of inflation on public policies.

The spending ceiling is the limit that the Government plans to apply to the General Budgets, in this case for the year 2023. From now on, a negotiation begins that promises to be arduous, even within the Executive. PSOE and United We Can must agree on the content of the budgets. The second vice president, Yolanda Díaz, celebrated this Tuesday on Twitter the new spending ceiling. "It is a decisive step to have budgets that cover the needs of the people," said the promoter of Sumar. For her part, Ione Belarra, general secretary of Podemos, assured that the approved spending limit must serve to "protect families, curb inflation and set a clear, brave and ambitious course for the end of the legislature", a clear warning before the objective announced by Pedro Sánchez of increasing defense spending.

Next year presents an exercise loaded with electoral appointments. Fixed on the calendar is the call for regional and municipal elections, which are scheduled for May. It is precisely to these administrations that Montero has dedicated a wink this Tuesday. Although the Government has maintained the deficit target of 3.9% for next year, it has modified the distribution. The central administration will have less margin, by reducing its deficit target from 3.4% to 3.2%.

The communities will thus have two tenths of a margin that they did not have in the previous distribution made by the Treasury. They may have a deficit of 0.3%, compared to the 0.1% initially forecast. That difference would be equivalent to about 2,500 million. In addition, the municipalities will have a more relaxed surplus target of 0.1%, compared to the initial 0.2%. "The Government assumes a greater effort so that the autonomous communities have a greater margin", assured Montero, who claimed that it is "the Executive that has given the most resources to the autonomous governments".

Montero arrives with this new autonomous margin to the meetings that he will have this Wednesday and Thursday with the representatives of the regional Executives. You must tell them what forecasts of payments on account – advanced tax collection – they can count on to prepare their respective budgets for next year. "The figure will increase significantly," promised Montero after the Council of Ministers.

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