Most of the fiscal burden will fall on sa­lary ear­ners

Will The Spanish Budget Deliver A Fair Recovery?

Pedro Sánchez, preocupado.
Pedro Sánchez, preocupado.

J.P. Marín-Arrese | The Spanish go­vern­ment boasts that the ta­bled budget will be­nefit most ci­ti­zens, from pen­sio­ners to young peo­ple, sel­f-em­ployed people or civil ser­vants. It hopes tar­ge­ting such groups will pay off when elec­tion time co­mes.

The government is also pinning its re-election hopes on the bonuses it will give young people to help them find a place to live on their own and on the money for entertainment it will hand out to those who will be of voting age next year. It also claims that extensive investment plans financed by the fat cheque coming from Brussels will deliver an upgraded growth model and better jobs. Thus, the budget follows PM Sánchez’s commitment to delivering a fair recovery.

Yet, the figures tell a different story. There is is not much wiggle room in the budget due to the large chunk of it committed to mandatory spending, So the government will have very little flexibility should the need to switch course arise. A small set of items (pensions, debt servicing, civil servants’ payroll, unemployment benefits and the contribution to the EU finances) make up more than 95% of total current spending. Therefore there is little room for implementing any other policy and discretionary spending amounts to a negligible share of total spending.

It is therefore far from clear how this budget can fuel recovery. Neither is fairness better served. Most of the fiscal burden will fall on salary earners. Salary earners bear Social Security contributions, 80% of personal income tax and a sizeable share of VAT and excise duties.

Investment is due to grow sizeably as EU funds provide a good cushion. The government will transfer most of this money to the private sector to finance green and digital projects, to upgrade productivity and a climate-focused economy. Yet, doubts arise as to its ability to make full use of such bountiful funds. Spain has only absorbed around 30% of structural and cohesion funds earmarked for that. There is nothing to warrant that it will perform much better now unless it gives away money to beneficiaries ready to undertake investments on their own. Pilfering public funds may help to show Brussels a high score of appropriations. Whether that line of action might add real value is open to debate.

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