The Bank of Spain insists that inflation is and will be the main challenge that Spanish society will continue to face in 2023. For this reason, it demands that the aid measures in the face of the constant increase in prices be focused on the most vulnerable. The debate takes place at a time when the Government is studying the extension of the social shield activated since last year and which expires on December 31. The economic vice president admitted this morning on RNE that the Executive is studying converting some aid into sectoral ones.
The Spanish economy is in a situation in which “high inflation” and “tensions caused by the war in Ukraine” are going to be the main threats next year. It is the conclusion reached by the banking supervisor, whose governor, Pablo Hernández de Cos, has inaugurated this Monday the appearances in Congress on the occasion of the processing of the general budgets for 2023.
This, De Cos pointed out, has led to a review of economic growth projections and a significant increase in those corresponding to the CPI. “Risks” is one of the most repeated words by the governor in his situation analysis.
In a complex scenario, the governor of the BdE has indicated that the tax increase forecast provided by the regulator for 2023 is greater than that included in the Budget project for next year (262,000 million, 7.6% more). In other words, it will be a record fiscal year. De Cos has remarked that “the estimate of public income included in the budgets seems feasible”.
The governor has repeatedly questioned whether widespread stimulus measures are best for this uncertain situation. In this sense, and “in the strictly budgetary sphere”, the governor has pointed out that the aid should “focus exclusively on the most vulnerable and be temporary, so as to avoid a generalized fiscal impulse and additional increases in the structural public deficit that feed the inflationary episode and deteriorate the sustainability of public finances”. The Government is what is studying at this time, if the tax reductions in VAT on electricity and gas or the bonus of 20 cents per liter of fuel should be restricted and selective.
De Cos has also proposed a “fiscal consolidation strategy” with the aim of “reducing the vulnerability of public accounts and rebuilding fiscal margins.” “To the extent that this strategy is rigorously designed, announced promptly and enjoys broad consensus, its effectiveness will be notably increased”, he stressed.
A strategy that, defends De Cos, should be accompanied “by a comprehensive review of public spending and the tax system that improves its efficiency and contribution to economic growth.” The Government does not contemplate in this legislature to execute measures of this type.
To combat inflation, De Cos emphasizes that the European Central Bank’s monetary policy “will maintain its normalization path” over the coming months. Until when?” “Until I manage to ensure the convergence of inflation to the 2% target in the medium term”. In other words, it will be a 2023 with high rates.
De Cos has again advocated an income pact. An agreement of the majority of the economic actors to be able to moderate wage increases and business margins. It is the flagship proposal of the Bank of Spain since the current crisis began to emerge and it has influenced it before the parties in Congress.
Regarding pensions, De Cos does not disagree with the indexation of all benefits with the CPI, but he does point out that the impact of inflation on public spending “will begin to be significant from 2023” due to this decision. Specifically, the Bank of Spain raises the total bill for this decision adopted in the Toledo Pact by almost 2,900 million. It would cost 15,300 million compared to the 12,400 expected by the Executive.
De Cos slaps the Government on the ear for the distribution of European funds, “crucial for the Spanish economy”. He calls 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.”
