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The public deficit is reduced by 16,000 million in March due to the pull in income | Economy

The Minister of Finance and Public Function, María Jesús Montero, in the Congress of Deputies on May 25.
The Minister of Finance and Public Function, María Jesús Montero, in the Congress of Deputies on May 25.Alberto Ortega (Europe Press)

The public deficit continues its downward trend thanks to the boost in tax collection. The difference between income and expenses of the Administrations as a whole, excluding local corporations, stood at 0.35% of GDP in the first quarter of the year, 1.38 percentage points below the levels of the same period in 2021. The decrease has been greater than 77%, and more than 16,000 million in absolute figures, according to data published this Monday by the Ministry of Finance.

The reduction in the budget gap, a path on which the public accounts have been heading for several months, is explained more by an increase in revenue than by a reduction in spending. The central administration, which has been absorbing the bulk of the total deficit, has reduced the hole in its accounts to 0.27% of GDP in the first quarter of this year, compared to 1.24% in 2021.

This result is due to a 17.4% increase in income, driven above all by the increase in collection, and a 4.3% decrease in expenses. Taxes on production and imports are the ones that have given the greatest boost in the quarter; Disbursements have been reduced by 2,784 million, despite the increase in transfers by the State to other Administrations, among which the compensation of 3,564 million to the communities for the month of VAT of 2017 that had not been paid to them stands out.

This flow has helped the autonomous communities, which since the outbreak of the pandemic have received a shower of money from the central State, to accumulate a surplus of 220 million, equivalent to 0.02% of GDP, at the end of March. Added to this is the rise in tax revenue of 12.5%, while expenses advanced by 2.5%. Only five communities registered red numbers: the Balearic Islands, Castilla-La Mancha, Catalonia, Murcia and the Valencian Community.

The Social Security Funds also improve their balance, with a deficit of 1,107 million in March (0.08% of GDP), compared to 2,120 million in the same period of 2021. In this case, expenses (-2.2 %) have fallen much more than income (-0.1%), due to the gradual reduction of the social shield deployed since March 2020 to contain the effects of the pandemic on income. In the first quarter of this year, its impact was 1,165 million, 72.1% less than the same period in 2021.

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The progressive reduction of the budget gap is not being accompanied by painful cuts or drastic tax increases, as happened after the financial crisis, when the recipe for austerity was imposed throughout Europe and the southern countries had to tighten their belts.

The ministry led by María Jesús Montero repeats that the engine of improvement is the economic recovery that began in 2021 after the containment of the health crisis. The other ingredient that hides behind this correction is inflation, which has been unleashed for months – even more so with the outbreak of the conflict in Ukraine – and which in May grew by 8.7% compared to the same period of the previous year

Spain had already closed 2021 with a spectacular reduction in the public deficit, of 3.3 percentage points ―excluding financial aid―, achieved despite the persistence of the health crisis. The budget gap then stood at 6.76% of GDP, thanks to the economic improvement and record revenues that exceeded expectations, and which was already boosted by inflation. This percentage represents one of the biggest holes ever ―about 81,500 million euros―, but it is much lower than the forecasts of the same Government sent to Brussels (8.4%) and that predicted by different national and international organizations.

Caveat

The EU, for its part, has decided to suspend fiscal rules for another year, in 2023, given the drastic change of scenery caused by the Russian invasion of Ukraine. The EU calculated that by the beginning of next year almost all the countries of the bloc – Spain would take longer – would have recovered their pre-pandemic GDP. But the conflict has added uncertainty and has been added to other pre-existing factors that already threatened to hinder the reactivation, including the energy crisis, the jam in the supply chains or the upward spiral in prices.

This means that the deficit may be, for another year, above the threshold of 3% of GDP set by the Stability and Growth Pact and that the debt may exceed 60% without the Commission activating fiscal consolidation programs. But it does not imply that the countries of the club can spend beyond their means, especially the most indebted.

In its recommendations to the Member States, the European Commission has asked Spain to contain current expenses, the same warning that it has sent to countries such as France, Italy, Greece, Portugal and Cyprus, which also have high liabilities. “In 2023 [España] it will have to ensure a prudent fiscal policy, in particular by limiting the growth of domestically financed current spending below the potential growth of the economy in the medium term”, he warned.

The State deficit is reduced by 67.6% until April

The Ministry of Finance has also released the State budget balance up to April, which confirms the downward path of the Administrations as a whole. The red numbers of the State have been reduced by 67.6% compared to the same period of the previous year, standing at 0.5% of GDP, going from 20,249 million in the same period of the previous year to 6,553 million. This result is due to a growth in non-financial income of 16.7%, compared to a much lower rise in expenses, of 4%. Taxes reach 62,638 million, 86.3% of total resources, and grow 16.7% compared to April 2021.

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