Spain: European Commission hints at relaxation of fiscal targets
April 26, 2013
On 26 April, the administration of Mariano Rajoy announced a new set of measures aimed at curbing the country's rampant fiscal deficit. The measures include the extension of a previous increase in the income tax until 2014, a raise in levies on bank deposits as well as on alcoholic beverages and tobacco, de-linking public sector wages from inflation and trimming the local administration. The European Commission (EC) praised the plans and stated that Spain will be likely granted two additional years to reach the 3% of GDP deficit target stipulated in the Maastricht criteria. According to the EC, the postponement to meet the fiscal deficit of 3% of GDP by 2016 "is consistent with the current technical analysis by the Commission services [...] given the difficult economic environment". That said, the Commission will wait until 29 May to make a formal decision during the European Union finance ministers meeting.
The government also unveiled its updated macroeconomic scenario. Owing to a less propitious growth outlook for the current year, the administration raised its fiscal deficit target to 6.3% of GDP (from 4.5% of GDP estimated earlier) and 5.5% of GDP for 2014. In 2015 and 2016, the government sees the deficit-to-GDP ratio moderating further to 4.1% and 2.7% respectively. FocusEconomics panellists expect that the government will almost reach the new target this year, with a projected 6.4% of GDP shortfall. In 2014, panellists see the fiscal deficit narrowing to 5.6% of GDP. The adjusted deficit figures also prompted an upward revision of the government debt estimates. The government now expects public debt to climb to 91.4% of GDP this year (previous estimate: 90.5% of GDP), before jumping to 96.2% of GDP in 2014. Again, private sector analysts are less upbeat, with the panel seeing public debt to reach 93.7% of GDP in 2013 and 98.6% of GDP in 2014.
On 22 April, Eurostat confirmed that the fiscal deficit -including aid to the banking sector -reached 10.6% of GDP, which is above the 9.4% shortfall witnessed in 2011. Stripping out the financial sector bailout, the fiscal deficit was 7.1% of GDP, which is above both the 6.98% of GDP shortfall previously announced by the Spanish government and the 6.3% target set by European authorities.