Spain: State Deficit Falls By 17% In First Seven Months Of Year

In the first seven months of the year, the Spanish State posted a deficit of 26.77 billion euros in public accounting terms, representing a reduction of 17% on the same period of 2014, the Spanish Ministry of the Treasury and Public Administration Services said Monday.

In GDP terms, the deficit stands at 2.44% compared with 3.05% in July 2014. This State deficit reduction stems from a 4% increase in non-financial resources and a 1.2% decrease in non-financial expenses.

The performance data for the month of July include the final settlement of the regional government and local authority financing system for 2013, affecting both State revenue (due to the amounts received from regional and local governments) and expenditure (due to the amounts that the State is required to transfer to them).

Settlement of the regional government financing system for 2013 amounted to 1.73 billion euros in favour of the regional governments, while settlement of the local authority system amounted to 524 million euros in favour of the State.

Non-financial State resources

In the period January to July, non-financial State resources amounted to 100.79 billion euros, a year-on-year increase of 4%.

This result is due to positive tax revenue trends, which show a 5.9% rate of year-on-year growth to a total of 85.86 billion euros, reflecting the improvements in economic activity and employment. Taxes on production and imports are up 7.5%. This is mainly due to the highly significant results from VAT, which posted 8.1% growth on last year.

The increased revenue from environmental taxes should also be noted, having risen by more than 52% overall. This increase in environmental taxes is due to the amounts collected under the new tax headings that were created to finance the costs incurred by the electricity system. Current taxes on income and wealth, which include revenue from Personal Income Tax and Corporate Income Tax, rose by 3.4% to July, in spite of the tax reduction stemming from the fiscal reform.

Transfers between public administration services rose by 33.9%, mainly due to the effect caused by the final settlement of the autonomous region and local authority financing system for 2013.

The increase in tax revenue and inter-authority transfers offsets the falls in tax on property income, which fell 44.3%. As in previous months, this reduction is due to two factors: the fall in dividends caused by the decrease in those corresponding to the Bank of Spain; and the decrease in revenue from interest, down by 52.6%. The decrease in interest is due to the 0% interest rate set in 2015 for all loans received by the regional governments and local authorities from the extraordinary financing mechanisms, whereas accrued interest from the Regional Liquidity Fund and the Fund for Financing Payments to Suppliers in the first half of 2014 amounted to 1.42 billion euros.

Finally, revenue from the sale of goods and services fell by 12%. This was mainly due to the decrease in guarantee commissions granted to credit entities.

Non-financial State expenses

Non-financial State expenses amounted to 127.56 billion euros, down 1.2% on the period January-July 2014. For the purposes of providing a true comparison between the two periods, it should be noted that the expenses in 2015 include two operations with no corresponding expense in the same period last year: the extra cost for producing electricity on non-mainland territories; and the reimbursement of 25% of the extra bonus payment for 2012. Discounting these two operations, in adjusted terms, expenses fell by 1.8% to July.