The temporary increase in revenue should not be used to finance structural spending. It is the main message left yesterday by the traditional appearance of the governor of the Bank of Spain in Congress to evaluate the 2023 budget project. The governor, Pablo Hernández de Cos, fears that a temporary increase in income will lead to chronic spending. He warns of the danger that this structural spending will skyrocket, that is, spending that is independent of the economic cycle, and that it will become a slab for the future.
De Cos accepted the 2.1% growth forecast set by the budgets, although it is higher than his own estimates (1.4%) and those of the consensus of international analysts (1.2%), and he focused on the “risks” that, in his opinion, are drawn on the horizon: the deficit, the indexing of all pensions to the CPI and the high rates of inflation that will continue to be recorded next year.
It was not an excessively harsh appearance with the Government, but De Cos did want, in a careful text that he reviewed until Monday morning, to mark the general lines of the threats that hang over Spanish finances.
The governor again clearly positioned himself against the rise in all pensions with the CPI. He defended indexing only the lowest benefits, in line with Fedea’s latest recommendation, and estimated the total cost of the measure at 15,300 million, as long as they end up revaluing the expected 8.5%. Social Security refuses to specify the cost of the indexation until November’s inflation is known (the public accounts contemplate a generic increase of 19,547 million in the pension item, which includes the revaluation, the entry of pensioners into the system and the greater amount of the new benefits). To this amount, the governor adds another 4,900 million as a result of the increase in the salary of public employees to 3.5%. De Cos insisted on the opportunity to explore an “explicit” income pact, in which the highest pensions are included, and to “take compensatory measures on the income or expense side to guarantee the sustainability of the system.”
Regarding the deficit, the governor demanded that the Government not take advantage of the record collection that it will have in 2023 (262,000 million, 7.6% more) to finance new permanent spending items. That is to say, that the deficit outside the current situation is not increased, but rather that it is reduced: “The measures that are implemented should have a temporary nature so as not to generate an additional increase in the structural public deficit, which was already very high in the Spanish economy even before the outbreak of the health crisis”. The budget project contemplates an estimate of the public deficit in 2022 of 5% and 3.1% in 2023.
Tax collection, in effect, will be historic. The Bank of Spain even believes that the administration will be able to dispose of greater resources than budgeted due to two components: an improvement in personal income tax income due to the evolution of the labor market, both in quantity and quality, and the moderate economic growth , with all precautions.
Inflation is, for De Cos, the big problem in 2023. It will remain high. The underlying, said the governor, is not expected to “fall from its current high levels until next spring.” “The reason is that, in the coming months, the pass-through of companies’ recent cost increases to their selling prices would continue to be completed,” he added. For this reason, he demanded that aid measures in the face of the constant increase in the CPI be focused on the most vulnerable.
The debate takes place at a time when the Government is studying how to extend the social shield activated since last year and which expires on December 31. The economic vice president, Nadia Calviño, admitted yesterday that the Executive is studying converting some generalized aid into sectoral aid, such as the bonus of 20 cents per liter of fuel. De Cos also called for a “comprehensive review of public spending and the tax system to improve its efficiency and contribution to economic growth.” The Government does not contemplate in this legislature to execute measures of this type.
Finally, De Cos took advantage of his visit to the Lower House to slap the Executive on the distribution of European funds, “crucial for the Spanish economy”. He called for “a careful selection of projects, their continuous evaluation and the complementary implementation of a comprehensive and ambitious set of structural reforms that reduce the obstacles that limit the growth capacity of our economy.”
