Research Dept. News
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Monthly Report, num 336 - June 2010
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Spain: overall analysis - Public sector
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New austerity measures to speed up the reduction in the public deficit
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As part of an extraordinary meeting of the European Union's ministers of the economy and finance (Ecofin), held on 9 May, the Spanish minister of the Economy and Taxation, Elena Salgado, announced a new package of austerity measures to reduce the public deficit further. The aim for 2010 is therefore 9.3% of gross domestic product (GDP) and 6% of GDP for the following year, 0.5 and 1.5 points below the forecast in the 2009-2013 Stability Programme, respectively. This intensification of the effort to reduce the public deficit is necessary in order to restore the confidence of international markets.
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Cuts in public investment, reduction in civil servant wages and frozen pensions, among other adjustment measures.
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These additional measures were subsequently made more specific. The most important in terms of the volume they represent are a reduction in state public investment and the average cut of 5% in civil service wages as from June 2010, as well as the wage freeze for 2011, with a higher cut for members of the government and other senior positions.
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Also notable are the suspension of the review of pensions for 2011, except for non-contributory and minimum pensions, and the elimination of the benefit for new-born babies of 2,500 euros as from 1 January 2011. Moreover, additional savings of 1.2 billion euros are expected to come from the autonomous communities and local bodies.
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Other measures in the package are: the reduction between this year and the next of 800 million euros in official development aid, the reduction of expenditure on drugs by lowering the price of medicines excluded from the reference price system, the suppression of backdated payments of dependency benefit to the date the application was presented in the case of new applicants, and the elimination of the temporary system for partial retirement contained in Act 40/2007.
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The gradual improvement in business and some fiscal measures have led to a certain improvement in revenue.
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With regard to trends in the central government's accounts, the weakness of the economy overall continues to have a negative effect, although the gradual improvement in business and some fiscal measures taken with regard to withdrawing stimuli have helped to improve revenue to a certain extent. Consequently, in the first quarter, total non-financial income for the central government fell by 1.9% compared with the same period the previous year, but compares favourably with a drop of 13.9% for 2009 as a whole.
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The central government's net borrowing is 15% up year-on-year in the first quarter.
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Revenue from direct taxes in the period January-March totalled 20.804 billion euros, a 0.5% drop year-on-year, while the revenue from indirect taxes reflects the improved consumption and investment, posting a year-on-year rise of 2.2%. As a result of the trends in revenue and payments, on a national accounts basis, i.e. according to the rights and obligations recognised, the central government's net borrowing in the first quarter totalled 8.908 billion euros, 15.2% more than in the same period last year.
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