The pieces of the budget puzzle: the Government trusts the recovery to cover the record of social spending


The pieces of the budget puzzle: the Government trusts the recovery to cover the record of social spending

The Government has taken another step this week to be able to count on the second budgets drawn up by a coalition Executive with its approval in the Council of Ministers. Although the details of these accounts remain to be accessed, which will be known with the presentation of the famous Yellow Book in Congress next Wednesday, the data advanced by the Ministry of Finance allow us to intuit how the Government plans to fit the pieces to increase social spending up to a record level, as Minister María Jesús Montero pointed out. And the economic recovery, in addition to European funds, has a lot to do with it.

Montero pointed out that the 2022 accounts had to be understood as “two differentiated budgets.” Some, with what refers strictly to national funds. Others, those linked to the receipt of European aid. Regarding the first of these sections, the improvement in the economic situation will have different effects, both through income and spending. Some of the impacts of the last two years, such as debt or money destined for unemployment and ERTE, are reduced. Only these two items already ‘free’ 4,000 million euros.

And then there is the expected impact via revenue. The Treasury has estimated an 8.1% growth in tax collection, a forecast that Montero called “prudent.” According to the accounts, there will be, according to the accounts, 232,300 million in collection, which means increasing tax revenues by about 17,500 million compared to the closing forecast for this year.

The Executive has decided to make few adjustments to taxation in Spain, beyond the announced minimum rate of 15% in Companies for large companies. A measure that has generated a lot of interest and was one of the points of friction between the PSOE and United We Can but which, with its current wording, will barely amount to 400 million and will affect a thousand companies. It will, therefore, be the evolution of the economy that marks the improvement in these revenues. Companies, with an expected growth of 11.8%, and VAT, with an increase of 9.5%, will be the taxes that pull from the collection.

Therefore, the Government finds itself with 21,500 million euros between the increase in income and the reduction in spending on certain items. For comparison, this sum is higher than the main increases announced in social spending for next year. The main of these items is the payment of pensions. The Government foresees an increase of just over 2% in these benefits and has budgeted that the total expenditure in this section will be 171,165 million euros at the end of 2021, 4.8% more than the forecast for 2021. They are somewhat less of 8,000 million increase compared to what was forecast for this year.

Other items of expenditure that increase in social spending are the promotion of employment, which obtains 600 million more; social benefits, with 300 million more; social services, which increases by 800 million; the management and administration of Social Security, which recorded another 770 million increase in spending; and Health and Education, which add another increase of about 850 million.

To this must be added another growth of just over 200 million in housing access policies, which coincides with the provisions to cover the rent bonus announced by Pedro Sánchez, and 300 million in culture, of which 210 million would correspond to the cultural voucher for young people. In total, all these items add up to an increase in spending of about 11.6 billion.

But one issue to bear in mind is that all these calculations refer exclusively to the national budget, without accounting for the impact of European funds that, for the second year, allow the Government to maintain a spending ceiling at historical levels. It will be 27,633 million that the Executive executes in the accounts of 2022, which drive added growth in some of the items mentioned above.

The Executive advanced after the extraordinary Council of Ministers last Thursday how it will be the distribution of this new batch of funds from Brussels that must develop the Recovery and Resilience Plan that Spain presented and was approved by the community authorities a few months ago. Going from the most general to the most specific data, the minister stressed that 90% of that money from the European Commission will be focused on investments.

At a next level of detail, the Executive has advanced which sectors will benefit the most from this money. The main item will be for industry and energy, which will account for 5,471 million euros (19.8% of the total). R & D & i and digitization policies follow, adding another 5,416 million (19.6%). Montero advanced that the objective in this second matter was to improve the productivity of Spanish SMEs and encourage them to gain size. Infrastructures take 17.4% of the total, about 4,800 euros.

To a lesser extent, other initiatives that will benefit are access to housing and the promotion of building, with 9% of the total, or commerce and tourism, which will receive 9%. Education, social services, promotion of employment or vaccines against COVID-19 are other destinations that appear in the distribution, already with a lower weight over the total.

The third step of detail to which the Executive has lowered in the advanced budget plan on Thursday details which are the chapters of the Recovery Plan that will receive European funds throughout the coming year. The one dedicated to industrial policy stands out, having budgeted 3,284 million of the slightly more than 27,600 million that the Government has included in the next state accounts.

It is followed by the chapter dedicated to the home renovation plan to improve energy efficiency, with 2,839 million. The shock plan for sustainable mobility takes 2,184 million. Above the barrier of 2,000 million budgeted for 2022 there is also the promotion program for SMEs.

In total, there are 26 components of the Plan that will receive European funds in 2022. Below those already mentioned there are also important items, such as almost 1,800 million to modernize the administration, almost 1,700 million for the national science system or 1,600 million to modernize the tourism sector. 5G, the care economy or the promotion of VET are also on the list.

The last level of detail reached by the Government on Thursday was to specify which specific policies included in the aforementioned chapters already have budget items for next year. The main one is the aforementioned boost to industrial competitiveness, which accounts for 2,784 million. The digitization of SMEs takes 1,600 million. The tourism sector will receive 760 million to become a more sustainable activity. The railway infrastructures will receive more than 600 million. The measures aimed at increasing the supply of rental housing “at an affordable price” will be 500 million. Renewables, the promotion of youth employment and research activity are also included in the 2022 budgets.

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