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Javier Elizalde Blasco, School of Economics, Universidad de Navarra

The unknowns

Thu, 01 Sep 2011 08:37:50 +0000 Published in La Razón (Madrid)

Yesterday we learned the motivating news that the public deficit has been reduced by 11.8% up to July and that so far this year the deficit as a percentage of GDP is 2.09%. The main causes are four: the increase in VAT rates in July 2010, the elimination of the "baby check", the decrease in public employees' salaries and the decrease in the returns of the tax return corresponding to 2010 due to the slight economic recovery.

The goal deficit set by Brussels for this year for Spain is 6% and leave to 2.1% at the end of 2014. With respect to this year's goal we are on track to meet it. Of the four causes mentioned above, the only one that varies for the remainder of the year is the VAT for the purchase of new homes, which leave from 8% to 4%. This measure will undoubtedly reduce indirect tax revenues, as the increase in home purchases is not expected to be so high as to compensate for the reduction.

What is a major unknown is whether the goal will continue to be fulfilled in the following years. And this will depend to a large extent on the evolution of the Economics (whether or not there will be a new recession) and on the reduction of the deficits of the autonomous communities and municipalities. Compliance with the goal does not have to be at the expense of a lower growth capacity if the management is improved and duplication or triplication of the expense for the same issue is avoided, unless the public sector slims down in a short period of time, which is not likely to happen. And the question of whether the fulfillment of the commitments will be at the cost of a lower issue of births, via the elimination of the "baby check", and with it a decrease in the issue of future contributors, is no less important. For this we must wait for the birth figures for the year, which we will know at the beginning of 2012. Storks also pay Social Security contributions.