Research Dept. News
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Monthly Report, num 305 - September 2007
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Spain: overall analysis - Public sector
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Public accounts running strong
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Economic boom continues to favour public accounts.
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The economic boom continues to push up the course of the public accounts. We should mention the good performance of revenues in the first half of the year. In fact, central government non-financial revenues rose to 69.13 billion euros, 12.7% more than in the same period in 2006. If we include revenues ceded to autonomous communities and local government according to the current financing system, central government receipts were up to 93.52 billion euros, an increase of 11.9% compared with the first half of the year before, four points more than nominal gross national product (GDP).
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Changes to personal income tax and company tax have little initial impact on revenue.
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Direct taxes were up 15.7% in the first six months of the year and amounted to 42.07 billion euros. The main contribution came from personal income tax amounting to 31.51 billion euros. This tax heading was up 13.3% as a result of the increase in employment and average wages. The impact of the personal income tax changes showed up as a reduction in the growth rate of wage hold-backs. The positive trend in dividend and interest earnings also contributed to sharp increases in hold-backs on capital earnings and on capital gains in investment funds although the effect of the increase in hold-backs from 15% to 18% showed up as well.
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In addition, the Tax Agency announced that at the end of July 80% of refunds for the 2006 income tax year had already been made. Refunds amounted to 7.66 billion euros involving 10,659,501 taxpayers, which meant an average refund of 718 euros.
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Strength in wages, profits and interest earnings push up direct taxes.
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Collections for company tax amounted to 8.94 billion euros, a sharp increase of 22.5%. This increase was due to the good level of company profits and hold-backs for returns on capital. The negative impact of the tax changes thus turned out to be quite limited.
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The main revenue heading was again indirect taxes which amounted to 44.84 billion euros in the January-June period, although the annual rate of increase (7.9%) was lower than that for direct taxes. Value added tax (VAT), the star of this tax heading, brought in 33.79 billion euros, an increase of 8.4% compared with the same period last year, in line with the growth of consumption. Under special taxes, fuel taxes (the most important) grew by only 1.8%, as a result of compensation paid to farmers, livestock raisers and transport companies because of the rise in diesel-oil prices in 2006, in spite of the rise in the tax rate on motor-vehicle diesel fuels in 2007. On the other hand, taxes on tobacco were up 16.2% following the increase in tax rates.
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Notable among other non-financial revenues were increases in investment support from European Union budgets. Income from profits of the Bank of Spain and interest earned on Treasury accounts also showed a spectacular rise.
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On the other side of the balance sheet, central government cumulative non-financial spending as of June amounted to 64.96 billion euros, which represented growth of 8.0% over the same period the year before. Personnel costs rose by 6.6% due to an improvement in wages in certain government departments. Spending for current goods and services was up by 19.3%, affected by the elections which took place this year. Investments, both civil and military, continued to show high rates of increase, as was the case with capital transfers.
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Central government obtains surplus at 0.58% of GDP in first half-year.
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As a result, with revenues higher than spending the central government obtained a surplus in the first half-year. In terms of National Accounting, that is to say, using the accounting methodology that takes into account funds and jobs as they are committed, the central government obtained a surplus of 6.07 billion euros, a figure that was easily more than twice that recorded in the same period in 2006. In terms of the GDP, the central government surplus came to 0.58% as against 0.26% the year before.
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Prime minister announces new 2,500 euros endowment benefit for each newborn child as of now.
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It was this favourable situation that made it possible for the prime minister to announce payment of a child endowment cheque of 2,500 euros for every child born or adopted as of July, thus raising family benefits, which in Spain are substantially lower compared with those paid out by the more developed countries in the European Union.
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