2023-05-19 23:40:54
About 170 million euros to subsidize trains and buses for young people, 17 million intended for unions, 14 million extraordinary for the public company Tragsatec to unblock European funds, 3.3 million as a credit supplement for the CIS , 10 million to subsidize the cinema for those over 65 years old… Without forgetting more abundant items such as 830 million for hydraulic works and 622 million for financing the affordable rental program. So up to 3,962.1 million euros. This is the figure in which the Government has increased spending in an extraordinary way during the first five months of this yearbeyond what was committed in the accounts that came into force on January 1.
To this amount, equivalent to the money provided as a Contingency Fund in the General State Budgets for 2023 (3,964 million), it is necessary to add another 4,000 million in guarantees from the ICO for the promotion of social housing, one of the last star measures announced in the middle of the electoral race. In total, almost 8,000 million in just five months, two weeks before the municipal and regional elections and seven months before the most likely date of the general election, on December 10.
If this amount may seem bulky, keep in mind that it is not the main problem. Beyond most likely having more spending announcements between now and the generals and in full swing of the Spanish presidency of the European Union (EU), the coalition government of the PSOE and Podemos headed by Pedro Sánchez and his economic vice-president, Nadia Calviño, will leave a heavy mortgage by 2024.
The slab of debt
The year in which the Stability and Growth Pact will be restored, which means that adjustments will have to be made, the current Executive will leave a heavy fiscal slab to the Government that follows him in the amount of around 377,000 million euros. This voluminous figure comes from the net increase in debt (359,000 million) calculated by Brussels from June 2018 (shortly before Sánchez came to power) until February 2023 (last data published by the Bank of Spain ), to which are added the almost 8,000 million in unbudgeted spending so far this year and almost 10,000 million annually in the form of additional debt interest due to both the increase in debt since 2018 and the rise in interest rates of interest
With these data, we must ask ourselves: Are we mortgaging the future of Spain with these levels of debt? The economist and chief strategist of XTB, Pablo Gil, is resounding in his statement: “Yes, we are mortgaging the future of the next generations, because debt is nothing more than bringing future well-being to the present. In other words, we mortgage the future of our children and grandchildren in order to maintain our level of well-being in the present.”
According to the latest data from the Bank of Spain, the debt of the Public Administrations is already 1.5 trillion euros, with an interannual increase of 5.6%, which represents 113% of GDP. “We are very far from the Eurozone measure, of 91.5%”, highlights Gil. “We are only surpassed by Greece, Italy and Portugal, our traveling companions from the last great peripheral crisis experienced in 2011”, he remarks.
For the economist José Carlos Díez, “the worrying thing is that both the Government and the autonomous communities continue to increase the deficit and there is no debate on the public debt». Díez, who clarifies that the subsidies “announced such as the cinema for the elderly and the Interrail for young people have a minimal impact”, insists that the most worrying thing “is the increase in debt and the structural deficit, which is similar to that already had Mariano Rajoy”.
If we look only at the increases in debt per legislature, it is discovered that the Sánchez-Calviño tandem is about to be the one that has increased the debt the most in the recent stage. If the two legislatures of José María Aznar registered moderate increases in the debt (69,000 million more in the first stage and 26,000 million more in the second), the second legislature of José Luis Rodríguez Zapatero, between 2008 and 2011, hit by the real estate and financial crisis, signed an increase of 343,000 million. They were the years of the bursting of a real estate bubble inflated with easy and very cheap credit, which ended up leading to a banking crisis that was about to burden the Spanish financial system and which had as its main victims savings banks and later Banco Popular. It was also the crisis of the countries of the southern Mediterranean arc. Greece, Portugal and Ireland ended up being bailed out and had to apply a tough adjustment recipe that triggered significant social tensions.
But the record of increases, so far, was set by Mariano Rajoy in his first legislature, from 2011 to 2015. The inheritance from Zapatero’s last term forced the PP Executive to a tough plan ‘adjustment imposed from Brussels by the famous men in black. The plan, which saved 65,000 million and was approved by the Parliament, contemplated an increase in VAT to 21%, the abolition of a pay to civil servants and cuts in spending and personnel in the local administration and in the Government itself , to which must be added the increase in personal income tax decreed in its first Council of Ministers, on December 30, 2011. Despite this, the debt suffered a net increase of 390 billion.
The current increase in the Sánchez legislature as well it is driven by external factors but also by deliberate decisions of an economic policy in favor of public spending. The two main external shocks – the coronavirus pandemic that broke out in 2020 and, subsequently, the war started by Russia against Ukraine just over a year ago – have caused a short circuit in the world economies from which Spain has not yet finished to go out. “For more than two decades we have sustained our economic model by increasing debt and maintaining negative real interest rates”, analyzes Gil. “So far, the combination has not generated more economic growth, but the opposite, something we have been observing in Japan for half a century”, and adds: “Spain, like the rest of the world, must stop and think where are we going”.
These debt growth numbers would have been much worse had it not been for an extraordinary cash-in dividend in 2022 (also due in 2023) thanks to inflation. These extraordinary revenues, of around 30,000 million, generated by the criticized refusal of the Government to deflate taxes, have helped to slow down the increase in indebtedness. But they are not recurrent. For this reason and others related to the type of fiscal policy being carried out, the European Commission, the AiREF and other independent bodies warn that the next Executive will find it very difficult to meet the 3% goal committed by the current Government to Brussels in the recent Update of the Stability Program, and less so if it continues the thread of announcements as it has been doing so far. “We need to be much more cautious with spending and raise taxes as requested by the Bank of Spain in its annual report, especially in VAT, where we have too many products at low rates”, affirms Díez. “During the last few years, excessive spending has been encouraged through expansive fiscal policies, supported by a European Central Bank (ECB) that acted as a source of free financing for European Governments”, says Gil.
The recourse to the Treasury
Unless the revenues are again greater than expected due to the effect of inflation, increasing the spending promises above the 8,000 million already carried to date will force either to review other items for the Contingency Fund, or to raise the net debt limit set by the Treasury in 2023 by 70,000 million euros. Precisely, against this new net debt limit is counted the promise to create, through guarantees from the ICO, loans to finance affordable rental housing for a total amount of 4,000 million.
The long-term effects of these policies do not end here. The 8.5% increase in pensions (around 15,000 million), 8% of public wages (3,000 million more that may reach 9.5% between 2022 and 2024) and the increase in the item of ‘debt interest will leave, at least $25 billion more in additional future spending commitments than just a year ago, as salary and pension increases are consolidated. For the time being, revenue increases are covering this spending gap. The question is until when.
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