31 mar 2017
Assessment of State Budget 2017

CEOE advocates increasing allocations to investment and activity-generating policies in order to generate activity, growth and employment

The employers consider is essential for revenue and expenditure figures to be objective and balanced, irrespective of the political framework in which they must be adopted

Pending detailed information on the General State Budget for 2017 (PGE-2017), which will be published in the first week of April, CEOE would like to see figures that are focused on reducing public spending and increasing the efficiency of public sector, enabling an improved management with assessment standards for said public expenditure, as well as for the transferred powers. Likewise, larger amounts should be allocated to productive investments and to policies that generate activity, growth and employment.

Corporate tax
Corporate tax — ©Dreamstime

In addition, it appreciates the Government’s commitment to meeting the public deficit targets. After years of non-compliance, the fact that 2016 closed with a lower budget imbalance than forecasted is a step forward in the fiscal consolidation process. However, we must keep in mind that there is still a way to go before we reach the EU target that would allow us to leave the excessive deficit procedure (below -3% of GDP). In addition, it is obvious that this lower deficit is due to the increase in the Corporate Income Tax and not a consequence of any greater control of public expenditure. The public deficit forecast for 2017 (-3.1% of GDP) seems somewhat ambitious given the economic slowdown expected for this year and the increase in some expenditure items.

The General State Budget for 2017 is based on a macroeconomic environment that shows a moderation in recovery for the Spanish economy, in line with CEOE’s estimates. The Government's forecast is for a GDP increase of 2.5% in 2017. Likewise, the labour market outlook for 2017, with a job creation of 506,000 people in Labour Force Survey terms, is consistent with forecasts, as is the expected fall in the unemployment rate to 16.6%.

In a first analysis and pending confirmation of detailed information, the following remarks could be made:

  • The General State Budget for 2017 consolidates the change in the orientation of the budget policy of the last two years, which shows an expansive bias on the expenditure side. The increase in social spending, coupled with the increase in the public sector workforce and the 1% increase in the salaries of civil servants, are a sign of the end of the fiscal policy adjustment. In fact, the total consolidated expenditure of the State remains at the same level as in 2016.
  • As for the revenue section, total revenues are expected to reach €200 billion, an increase of 7.5% over actual revenues in 2016, according to information recently published by the Tax Agency. This growth rate seems excessive since it is much higher than the estimated increase in GDP, even taking into account the effect of the increase in the Corporate Income Tax implemented at the end of 2016.
  • The tax collection level would be, if forecasts are met, the same level reached in 2007, a year that saw historical highs for tax collection. Reaching this level with lower activity and employment rates was possible through a significant increase in taxes and proof of this is the enormous effort that taxpayers have had to make. In this sense, these highest revenue figures should be used to undertake additional tax cuts that should mainly affect the business sector and favour investment and job creation, strengthening and accelerating the economic recovery. Specifically, and in terms of revenues from the Corporate Income Tax, revenues would be recovered through the increase in the tax bases that the increase in business profits would bring about, without the need to modify tax regulations to increase revenues.
  • In recent years, actual collection figures have always been lower than the Government's estimates. This is why any shortfall from collection forecasts should be offset by reductions in spending and in no case with additional tax increases, as has been the case in recent years. Along these lines, the importance of a stable and predictable fiscal framework should be re-emphasized if Spain wants to attract both, domestic and foreign investment.
  • It is still early to assess the announcement of increased spending on R & D & i (4%) and active employment policies.