The persistent rise in inflation that will continue to rise in the coming months, no matter how predictable, gradual and moderate this trend is, is putting pressure on the Spanish Government to rethink its goal of not extending the aid set in 2024 underway to curb inflation caused by the war in Ukraine.
With each new data, the pressure will increase, because everything indicates that prices will continue to rise until reaching, at the end of the year, an area between 4.2 and 5% according to the various calculations. It is true that 3.5% in September is one of the lowest inflation rates in the European Union, and also that it was an announced increase because it is largely determined by the base effect, that is, the comparison with the same month of the previous year. However, it is politically difficult to manage a withdrawal of aid with prices increasing and food prices moderating very slowly.
This withdrawal of aid is what the Spanish Government initially plans for 2024, because it is time to return to fiscal discipline. Brussels and the Bank of Spain, among many others, say so. Officially the Executive does not pronounce. The First Vice-President and Minister of the Economy, Nadia Calviño, does not budge from the “we will study it in due course”, but the plans are a general withdrawal and the recommendations of the European Commission also follow this line. It is about putting an end to the policy of unrestricted expenditure and facing a reduction of a skyrocketing debt, of 111.2% of GDP during the second quarter of the year. It is a positive development because it is approaching the Spanish Government’s objective for the whole of 2023, which is 110%; but which does not hide the obligation, starting next year, to return to levels more in line with European fiscal rules, which will be applied again with a gradualness that is currently being negotiated.
“The rise in inflation is a challenge for the Spanish Government, but it is necessary to proceed with a scalpel”, says Raymond Torres, from Funcas, who considers that “some aid, for example those focused on fuel for professionals and above all protection for to the most vulnerable, they can be justified and maintained, but I don’t see other aid being justified”. Torres points to one of the big reasons for the uptick in inflation, in addition to the statistical effect (which helped in the spring with a minimum of 1.9% inflation in June, but which now penalizes), as is the increase in the price of oil. For this reason, I would consider it justified, if any subsidy is maintained, that it be in this sector.
A similar line is followed by Judith Arnal, researcher at the Royal Elcano Institute, who is a supporter of “a progressive withdrawal of fiscal support measures, although maintaining them in force or even designing measures focused on the most vulnerable groups” .
In May, the European Commission already asked Spain not to extend the aid granted due to the energy crisis in 2024, and to use the savings achieved in this way to reduce the deficit. More recently, last week the governor of the Bank of Spain, Pablo Hernández de Cos, called for a restrictive fiscal policy for next year and the abolition of the exceptional aid introduced.
These are measures that have a high budgetary cost. In 2023, it will amount to 15,000 million euros, 1.1% of GDP, according to Airef. In June, the Spanish Government assessed that between tax cuts, direct aid and bonuses, the total cost was 8,900 million during the second part of the year.
The range of measures is wide: it ranges from the reduction of electricity taxation, the VAT of gas and basic foods, the subsidy of the transport pass and the free Medium Distance Commuter, in addition to the fuel bonus, in this case, already limited to professionals and gradually reducing.
