Facing the Covid-19 crisis has multiplied the budget deficit of the Spanish public accounts from 2.86% at the end of 2019 to 10.9% at the end of 2020. An increase of 87,435 million euros, reaching 123,072 million, as detailed this Monday by the Minister of Finance, and spokesperson for the Executive, María Jesús Montero, at a press conference.
During the presentation, the head of the Treasury stressed that nine out of every 10 euros of increase in public spending have been derived from the plans promoted to mitigate the coronavirus crisis. The most important item, of 44.907 million is directed to defray the economic programs. This package comprises the 21,520 million destined to pay the ERTE, the cessation of activity of the self-employed and the temporary disability due to the Covid losses; 8,282 million in social and health expenditure of the autonomous communities; 7,791 million to cover the exemptions of contributions to the Social Security of the self-employed and affected by ERTE and 7,312 million of other items to contain the Covid.
Thus, finally, the year closed with a deficit of 83,051 million euros in the central administration (7.49% of GDP); 2,306 million in the autonomous communities (0.21%); 29,685 million in Social Security (2.65%) and a surplus of 2,870 million in local corporations (0.26% of GDP). The public administrations as a whole have a budgetary imbalance of 113,172 million (10.08% of GDP). This is an increase of 217.8%.
Adding the 9,878 million in aid to financial institutions, which include the impact on Sareb’s public accounts, the deficit culminates in 123,072 million (10.97%). An unprecedented increase of 245.3% compared to 35,637 million at the end of 2019.
The central administration has assumed about 70% of all the disaster, among other things by making extraordinary injections to the autonomous communities, as was done with the Covid fund of 16,000 million for health and educational expenses and compensation for the loss of collection; the 20,000 million transferred to Social Security and the 2,300 million paid to the public employment service, the SEPE, for benefits and unemployment benefits.
Fall in collection and rise in spending
“The data on the closure of the public deficit is better than had been predicted by national and international analysts and below the objective communicated by the Government to Brussels,” he stated, compared to the 12% previously provided by the European Commission, or the IMF, which was targeting 11.7%.
Moreover, until now, the official government forecasts pointed to the public deficit jumping from 2.8% at the end of 2019 to 11.3% at the end of 2020, as a consequence of the unprecedented crisis opened by the crisis of the coronavirus, which has triggered public spending to alleviate its health, social and economic effects while reducing the collection (which the Executive had been estimating that it would yield 7.6%). Thus, government spending rose by 53,070 million, while public resources have decreased by 24,487 million (-5%). All in all, the collection falls less than the GDP, the income of the Tax Agency is reduced by 8.8% compared to the -9.9% year-on-year decline in activity. Something that Montero has attributed to the income protection measures promoted by the Government.
Such a budgetary imbalance has been financed via public debt, which has increased its volume by 112,500 million euros in 2020, reaching 1.3 trillion euros, jumping from 95.5% to 117.1% of GDP, somewhat below 118.8% initially estimated by the Executive.
“The budget execution data that we present today and we are going to send to the European Commission show the difficult situation we are experiencing,” Montero summarized, referring to the high cost of the pandemic. “The decision of the European Commission to suspend fiscal rules showed that Europe as a whole, the world as a whole, is facing the crisis in a different way” than was done in the previous one, when the priority was to promote policies of austerity, Minister Montero has celebrated.
The impact of Sareb
Despite this, the final data has worsened substantially after Eurostat even forced the Government to include in the perimeter of public accounts the poor results of the asset management company from the bank restructuring, Sareb.
Specifically, the European statistical office has forced to recognize some 35,000 million euros from Sareb in the calculation of public debt, which has ended up reaching 120% of GDP, and to add almost 10,000 million extra of deficit, given the public participation of the Been in the so-called bad bank.
Without calculating the bad bank, the public deficit would have remained at 113,172 million euros, 9,878 million less than the final balance, standing at 10.09% compared to the 10.97% required by Eurostat.
Suspension of fiscal rules
The Bank of Spain had recently estimated that the deficit had risen to 10.8% at the end of 2020, anticipating that, according to its central scenario, the budget hole would be lowered to 7.7% this year, to 4.8% in 2022 and to 4.4% in 2023.
Despite the fact that, under normal conditions, any figure above 3% is equivalent to activating the Excessive Deficit Protocol of the European Union, which imposes adjustments to control the fiscal hole, last year the community authorities activated the so-called escape clause, suspending the deficit targets for 2020 and 2021. Brussels is now committed to expanding this margin during 2022, although the measure must be supported by the partners this spring.
Despite this additional margin, the Bank of Spain and the Independent Authority for Fiscal Responsibility (Airef) have been pressuring the Government to present a consolidation plan in the medium and long term that allows the public accounts to be cleaned up at a good pace once the worst part has been overcome crisis, in order to have a reliable roadmap for European partners and markets. It should be remembered that the almost 150,000 million euros in direct aid and soft loans that the EU will grant to Spain to undertake its Recovery Plan will also be conditional on compliance with fiscal rules once deficit targets are reactivated.
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