The think tank Economic Funcas criticizes in an extensive report dedicated to Budgets that the Government is not capable of adjusting the structural deficit despite the extraordinary increase in collection. The two scenarios included in the Executive maintain Spanish finances with a deficit of 3.9% despite an increase of more than 6% in total income, with the risk that they are conjunctural due to inflation, and a fiscal pressure that also exceeds 42% of GDP. Thus, the deficit would exceed 50,000 million despite the fact that practically all items of non-financial income are expected to improve compared to the previous year.
Desiderio Romero-Jordán, a Funcas researcher, warns, within this analysis of the Budgets for 2023, of a “worrying dysfunction” among the short-term revenue increases and the increase in expenses of a structural nature, “which adds pressure to the deterioration of the Spanish structural deficit”. Expenditure managed by the Government increases almost at a rate of 4%, less than that of income. However, the nominal amount of the disbursement (between 640,000 and 650,000 million euros) exceeds that of the income (which is around 590,000 million).
As Funcas points out, “a relevant part of the increase in spending in 2023 will be structural”, and targets Social Security and the public sector. Public pensions will increase by 20,000 million, and the salaries of civil servants will put pressure on spending by another 5,000 million, which adds up to 1.8% of GDP. In addition, Social Security itself absorbs of the State and taxes part of its financing for improper expenses (that is, non-contributory expenses), some 39,000 millionas a recommendation of the Pact of Toledo to separate the sources of financing.
The negative shock of inflationwith all its cons, is a shadow tax that improves income in the short term. The tax bases of the IPRF or VAT rise, wages improve and, as a consequence, more income, consumption or social contributions are collected. In fact, AIReF expects inflation to add up to an extra 17,000 million in these three items, with special weight in the best of affiliation and the improvement of contribution bases.
With everything, from Funcas they emphasize that the ball of structural spending continues to grow fat, while the counterpart of the collection improvement in 2023 “will be of a temporary nature, instead of being the result of a genuine tax reform, as previously agreed with Brussels”.
“The need to face public spending and revenue policies with a less short-term visionwith criteria of both equity and efficiency, which make it possible to face shocks that will surely be to come, as they unexpectedly occurred in 2008, 2020 or currently in 2022″, they sentence from Funcas as a warning to the Government.
Roorient public anti-crisis spending
Funcas considers it necessary to “limit” the dimension and the beneficiaries of the aid launched by the Government to alleviate the effects of the current economic situation, also taking into account its cost and its redistributive impact. “The widespread application of anti-crisis measures throughout the next year would clash with the objective of containing inflation,” warns Funcas.
For Santiago Lago, professor of Applied Economics and researcher at Funcas, the final evaluation of the General State Budgets for 2023 will depend on how the crisis response measures are implemented and their estimated cost.
Thus, it defends that an effective solution must be found in its results, but financeable and coherent with the fiscal margin “in an environment that tends to worsen”, for which reason it advocates “be very selective” in the measures to prolongand even not exhaust the available margin already in December in view of the possible appearance of new needs in the coming quarters.
Within this selection, Lago highlights two “candidate” measures for its cut or disappearance: the bonus of 20 euro cents per liter of fuel and VAT reductions for electricity and gas.