Spain Announces New Deficit Target For 2016, Aims To Guarantee Growth And Job Creation

The new public deficit target for the Kingdom of Spain for 2016 will be set at 3.6% of GDP, which will be included by the government in its Stability Programme to be submitted to the European Commission. This revision is the logical consequence of the evolution of the national and international economic situation, far different from that which existed back in 2013 when the current course of the deficit reduction was set, the Spanish government said.

The Spanish government said the evolution of the economic situation requires ongoing revisions and updates of government forecasts and policies. In this regard, the national and international economic situation has also changed over the last three years and this has forced the government to alter the path of fiscal consolidation in Spain. The determination with which our country has tackled reducing the public deficit over the last four years and the economic reforms undertaken in this period have allowed a process of economic recovery to commence which has taken Spain to the forefront of the major nations in the European Union in terms of economic growth and job creation.

This growth in GDP, which was double the Eurozone average in 2015, has taken place while insisting on reducing the public deficit. The government’s priority now is to bed down this economic growth, which has wholly translated into the creation of jobs in Spain and which is helping push up the economy of the European Union, the government said.

Notification to the European Commission

As agreed on Wednesday by the General Committee of State Secretaries and Under-secretaries, the government will notify the European Commission that it will maintain its commitment to reducing the public deficit, by following a new path of fiscal consolidation which is compatible with economic growth and job creation.

The new public deficit target has a margin of 0.8%, which will be distributed between the Social Security system and the regional governments, while the local authorities will maintain their initial target of zero, collaborating as they have to date in the general improvement of the Spanish economy.

The new target will make compliance therewith much more attainable by the regional governments: 0.7% of GDP is more than double the forecast made back in 2013, when the target was set at 0.3%.

The government said that it should be remembered that this public deficit target of 0.7% is what should have been met by the regional governments in 2015, but which was only achieved by three of them: the Canary Islands, Galicia and the Basque Country. The regional governments as a whole now have an additional year to reach this global target, to which end they will be able to count on increased regional financing of 7.4 billion euros above last year’s figure. They will also be able to factor in a saving in interest payments of more than 3 billion euros through loans obtained via the liquidity mechanisms implemented by Central Government.

Compliance with European Commission Recommendation

Furthermore, to guarantee compliance with spending rules and the new fiscal consolidation targets, Central Government has approved the application of various articles of the Constitutional Budget Stability Act with both preventative and coercive measures, thus meeting the requirements of the Autonomous Recommendation issued by the European Commission following non-compliance by the regional governments with the deficit target set for 2015.

The Ministry of the Treasury and Public Administration Services will hold bilateral technical meetings later this week with all of the regional governments affected, as announced at the latest meeting of the Fiscal and Financial Policy Council, in order to negotiate the content of the adjustment plans and the Financial-Economic Plans.

The government will report on the new path of fiscal consolidation to the National Local Authority Committee on Tuesday, 26 April, and to the Fiscal and Financial Policy Council on Thursday, 28 April.