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Back to Presupuestos 2011: entre el rédito político y la coyuntura económica

Juan Carlos Molero, Professor, School of Economics and Business Administration, University of Navarra, Spain

Budget 2011: between political gain and the economic situation

Wed, 01 Dec 2010 11:04:04 +0000 Published in The Economist

For yet another year, the General State Budget for 2011 has been presented at presentation on congress . Many and varied opinions have been expressed and will continue to be expressed about these budgets, but there are some neuralgic points that should not be forgotten at core topic . Firstly, and in defense of any government regardless of political color or administrative level, the difficulty of balancing the accounts is invariably a complex task. Increasing public spending always has a logical political benefit, although from an economic point of view it is not always necessary. The opposite happens with the income from subject taxation, where the greatest political gain would come from decreasing them, regardless of the economic status . Thus, the favorable economic situation prior to the crisis should have been better exploited, avoiding the incrementalist vice of spending and further enhancing the automatic stabilizers via taxes, which, incidentally, was done relatively well. With a more counter-cyclical policy, the deficit of more than 11% recorded in 2009 would have remained well below double digits, which would have made it possible to avoid the extreme cuts experienced in Spain last May at expense : required by the economic situation, but at a very high political cost. At summary, the 2011 budgets inherit one more year the lack of foresight of the past.

The second point core topic is austerity. Once again, the budgets are more austere than those of 2010, which could not be otherwise, although presumably more credible, as long as the surprises experienced by the budgets of the current year are not repeated: the aforementioned cut in May, the Greek crisis, or the attacks on the euro. Indeed, after freezing pensions and cutting civil servants' salaries in 2010, among other measures, the fact that the 2011 budgets announce a 7.7% cut of expense for the Central Administration is an easy piece to fit into the austerity puzzle. The commitment to a 6% deficit for next year is more than a necessity, although we will first have to meet the latest forecast of 9.3% for 2010.

Third, there remain some shadows that could delay fiscal balance. Let us mention just a few. On the revenue side, the increase in VAT revenues should stabilize. The Social Security surplus continues to lose ground. The increase in personal income tax collection due to the increase in rates for the highest incomes will give a meager income of approximately 350 million Euros, a figure lower than the amount that will be given to the Basque Country, 472 million Euros, to manage the bonuses to companies, ceded in exchange for budgetary support. And speaking of cessions: has political gain or economic efficiency been sought here? I think both, but the non-approval of the budgets would weaken the Spanish brand, which is unacceptable today. The debt service is skyrocketing, the latest news speak that the global debt of the Public Administrations is already close to 600,000 million Euros, a figure very close to the 60% limit imposed by Europe. And let's not talk about the economic status , which will have everything to say for the budgets to achieve their objectives, basically because they are based on an estimated GDP growth between 0.4 and 0.6%, far from the estimated 1.3% of May and insufficient to move the unemployment rate away from the 20% level.