The Government has raised the deficit forecast for 2021 to 8.4% of GDP, which is seven tenths more than the 7.7% forecast included in the General State Budget (PGE) project.
This was advanced that Friday by the Minister of Finance and Government spokesperson, María Jesús Montero, before the Executive sends to Brussels, this Friday, the Stability Program with the new fiscal scenario and the update of the macroeconomic framework, as well as the National Reform Plan and the Recovery, Transformation and Resilience Plan, with the package of reforms and investments that Spain intends to promote to channel the 140,000 million European reconstruction funds that it will receive until 2026.
Stimulus maintenance
The upward revision of the public deficit for 2021 comes after the Government has lowered the forecast for economic growth for this year to 6.5% (from 9.8% that had been projected in October). The lower the economic growth, the lower the collection and the higher spending on unemployment, which is why the deficit forecast for this year now rises to 8.4%, according to Minister Montero’s explanations.
The spurt of economic growth in the first quarter of the year, with a fall of 0.5% linked to the third wave of the virus , has led the Government to correct its expectations for 2021. In return, those of 2022 have improved. for which a 7% growth is expected. “At the end of 2022 we will recover the levels of activity prior to the pandemic,” Montero said.
In addition, the deficit targets for 2021 and 2022, according to the minister, obey the dual purpose of the Government of ” maintaining economic growth stimuli for as long as necessary” and of adopting the tax increases provided by the Executive to the pace of recovery. “We will be evaluating how growth forecasts are progressing and to what extent the tax reform can be accelerated, delayed or applied in different phases,” said Montero.
The minister refused to detail the possible impact of the tax reform committed by Spain before the European Commission until the year 2024, arguing that economic uncertainty makes that exercise impossible. In any case, Montero rejected that the absence of calculations on the tax increase has to do with the regional elections in the community of Madrid on May 4.
Path of deficit and debt
The Stability Plan document that all member states must submit to the European Commission before April 30 includes, on this occasion, the path of deficit and debt targets until 2024, one year after the current maximum term Spanish legislature (November 2023).
After having reached 11% of GDP in 2020, the Treasury forecasts that the public deficit will fall to 8.4% in 2021; to 5% in 2022; to 4% in 2023 and 3.2% in 2024. For its part, the public debt path traces a downward path, from 120% of GDP in 2020 to 112.1% in 2024, through 119.5% in 2021; 115.1% in 2022 and 113.5% in 2023.
Montero stressed that this path has been built “under an inertial scenario” ; that is, without incorporating any of the possible effects of the reforms that are part of the Recovery Plancommitted to Brussels, which includes tax increases and reform of the pension system, among other measures.
The Finance Minister stressed that, even under this “inertial” scenario, Spanish accounts would reach 2024 with a deficit of around 3%, meeting the objectives of the European Union Stability Pact. The measures adopted should result in an even smaller deficit, Montero stressed.
And this – he added – results in the “good reputation” of the Spanish government. “Without being forced by the fiscal rules (on hold, due to the covid), I present a path of stability that almost leads me to exit the Excessive Deficit Procedure in 2024,” said the minister, referring to the 3% objective that Brussels brand.
