Research Dept. News
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Monthly Report, num 312 - April 2008
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Spain: overall analysis - Public sector
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Central government surplus down in first two months of year
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Economic slowdown beginning to show up in public accounts…
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The economic slowdown is beginning to show up in the public accounts. Following a brilliant result in 2007 brought about by a rise in tax revenues, non-financial additions to the public purse rose by only 1.2% in the first two months of 2008 compared with the same period last year, if we include revenues ceded to autonomous governments and local government under the present financial system. In the first two months of the year central government revenues grew at a rate lower than nominal gross domestic product (GDP) and even lower than inflation.
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...especially in indirect tax collections, down 6% in January-February compared with same period year before.
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Direct taxes showed a notable increase with a cumulative year-on-year rise of 10.5% as of February, although this was substantially lower than that recorded in 2007. Personal income tax was up 9.5% due to the increase in hold-backs on wages and especially those on capital. Corporate tax was up even more at 25.2%.
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Where the economic slowdown was most notable, however, was in indirect taxes which were down 6.1% in January-February compared with the same period the year before. Collections for value added tax (VAT) were down 8.2%. This drop may be accounted for by the contraction of economic activity in construction and real estate, the weakening in growth rate of consumption and the impact of the introduction as of January 2008 of tax consolidation for corporate groups, under Law 36/2006, dated November 29, incorporating measures to prevent tax fraud.
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On the other hand, special taxes were up 5.6%, a figure only slightly lower than that reported in 2007. The biggest year-on-year increase (18.3%) came under the heading for tobacco products. The most important special taxes, those for petroleum products, however, were down by 2.2% due to the negative effect on consumption coming from higher fuel prices. Taxes on alcohol and alcoholic drinks rose by 2.4%, less than inflation.
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With regard to other central government revenues, these showed a moderate rise of 4.7% in the early months of the year compared with the same period in 2007. We should point out that the heading for fees was up 49.8%. Nevertheless, interest on the Treasury’s current account was down by 5.6% while inflows of capital transfers from the European Union showed a lower rate.
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Non-financial payments rising at higher rate than revenues due to current transactions.
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Central government non-financial spending as of February rose at a rate significantly higher than revenues, to show a year-on-year increase of 7.7%. Among this spending, current spending was up 8.7%. Personnel costs rose by 9.9%, spending on goods and services was up 4.0% while financial costs increased by 12.6%.
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Capital costs were up only 0.8% in the same two months compared with the same period last year. Nevertheless, civil investment, mainly in roads, rose by 13.9%. On the other hand, military spending was down 17.5% and capital transfers dropped by 2.1%.
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Central government surplus drops to 0.8% of GDP in first two months.
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The result of the trend in central government revenues and spending was a surplus, which in terms of National Accounting, that is, taking into account amounts due and owing, came to a total of 9.38 billion euros, 27.5% less than in the same period last year. This figure represents 0.84% of GDP, 0.39 percentage points less than in the same period in 2007.
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