State deficit falls by 18% in the first four months of 2015

Following on from the improvements implemented in the Ministry of the Treasury and Public Administration Services to make economic and financial information more transparent, the data for the State's budget execution published this month include two important new items.

For the first time, data are published on the adjustments relating the balance of the State budget in cash accounting terms and the balance in public accounting terms, also including full information on each adjustment carried out.

Second, the information on the State budget execution includes monthly figures on the system by which the State finances the regional governments and local authorities, with a breakdown of the non-financial resources and expenses in public accounting terms.

The consolidated deficit of Central Government, the regional governments and the Social Security system corresponding to the first quarter has also been published. It stood at 8.6 billion, slightly above the figure in the same month in 2014, but below the deficit recorded the previous month, which was 10.37 billion, reflecting a significant improvement on the consolidated deficit in March.

State deficit (April)

In the first four months of the year, the Spanish State posted a deficit of 11.98 billion euros (1.09% of GDP), below the figure of 14.61 billion euros (1.38% of GDP) posted for the same period in 2014.
In the first four months of 2015 the deficit was down 18% year-on-.year, as a result of resources increasing 4% and a fall of 0.5% in expenses.

Non-financial State resources

In the first four months of the year, non-financial State resources increased to 57.84 billion euros, 2.25 billion up on last year. This positive result is due to an increase in tax revenues of 6.7% on April 2014 to 51.38 billion euros.

In particular, there was a notable rise of 8.8% in VAT revenues in the first four months of the year. Revenue from taxes on current income and assets also increased significantly. These headings include personal income tax and corporate tax revenues, which were up 5.8%, factoring in the tax cut under the tax reform and the increase in the taxable bases due to improved income and profits that have increased final revenues.

The increase in tax revenues offsets the falls in tax on property income, down 1.38 billion euros on 2014, due to a fall in dividends of 31.7% due to the fall in dividends corresponding to the Bank of Spain, and also lower interest income, which fell 51.2%. The interest charged for the extraordinary financing mechanisms amounted to 755 million euros in April 2014, while in 2015 there was no income under this heading, as an interest rate of 0% was set for 2015 for all the loans taken out by the regional governments and local authorities from the Financing Funds (Royal Decree-Law 17/2014, on financial sustainability measures for the regional governments and local authorities).

Finally, transfers between public administration services rose by 21.4%. This was basically due to the transfers from the Traffic Agency for 136 million euros and the Spanish Medicines and Healthcare Products Agency for 230 million euros, with no corresponding transfer in 2014. These transfers were carried out to comply with one of the measures contained in the Public Administration Reform (CORA) aimed at improving the management of the treasuries of public sector entities.

Non-financial State expenses

To April, non-financial State expenses amounted to 69.82 billion euros, 0.5% down on the same period in 2014. The expenses in 2015 include two operations with no corresponding expense in 2014: the extra cost for producing electrical energy on non-mainland territories (290 million euros), which was entered in another period in 2014; and the reimbursement of 25% of the extra bonus payment for 2012 (153 million euros). Not counting these two operations, expenses fell by 1.2% in the first four months.

The current transfers between the public administration services, which are the biggest item at a total of 39.37 billion euros, fell year-on-year by 1.7%. This is due to the reduction of 17.3% in transfers to the Social Security Funds as a result of the fall in 30.8% of transfers to the State Public Employment Service. In contrast, transfers to regional governments and local authorities increased by 4.6% and 6.4% respectively.

Of note under the expenses heading is the remuneration of employees, with an increase of 2.1%, including the 153 million euros for the payment in January of 44 days of extra bonus payment for 2012. Not including this amount, this item fell by 0.8%.

There was an increase in intermediary consumption of 5%, in part due to election expenses, as well as higher costs for the issue and placement of debt. Interest expenses grew by 0.5% year-on-year in the first four months, although there was a fall in April of 1% year-on-year in this item.

Social benefits other than social transfers in kind grew by 3.7%, due to the increase in civil service pensions, which increased by 3.3%.

Under capital expenses, gross formation stood at 1.46 billion euros, up 4.2% on 2014. Capital transfers fell by 10.3% because there was an extraordinary increase under this heading in 2014 caused by the transfers made to ADIF (118 million euros) and IDAE for PIVE (175 million euros). Finally, investment subsidies and other capital transfers rose by 120 million euros, of which 77 million euros correspond to expenses for subsidies on loan interest, which have no corresponding transfer in the first four months of 2014.

Combined deficit of the Central Government, the regional governments and the Social Security system (March)

The consolidated deficit of the public administration services, excluding local authorities, was 8.6 billion euros to March, equivalent to 0.78% of GDP, under the figure of 0.95% of GDP to February.

Central Government

Central Government posted a deficit of 9.13 billion euros at the close of March, equivalent to 0.83% of GDP, under the deficit figure the previous month, which stood at 1.06% of GDP. The balance of Central Government includes the State deficit, equivalent to 0.88% of GDP, which has been offset by the surplus from the central government agencies of 0.05% of GDP.

The State deficit remains practically the same as in the same period last year, 2% higher than the figure for the first quarter of 2014.

The surplus of the regional agencies amounted to 526 million euros to March, down 1.27 billion euros, as the Deposit Guarantee Fund (FGD) reduces its positive balance by 929 million euros. This situation is mainly due to the ordinary contributions paid to the FGD by credit institutions being considered a financial deposit until a final decision is taken on the financing of the European Single Resolution Mechanism.

Social Security Funds

The Social Security Funds posted a surplus of 2.72 billion euros to March, equal to 0.25% of GDP, 0.07 points below the figure for March 2014.

By agents, the Social Security system posted a surplus of 1.56 billion euros in the first quarter, 0.14% of GDP (compared with 0.23% in March 2014). Expenditure by the system rose by 3.4%, due to an increase in social benefits (both contributory and non-contributory). Revenue increased by 0.1% as a result of social benefits rising 0.4% and State transfers increasing by 0.5%.

The State Public Employment Service increased its surplus by 243 million euros on March 2014 to 1.2 billion euros. This is a result of the fall in unemployment benefits of 17.9% and an increase in National Insurance contributions of 2.4%.

Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) reduced its deficit by 13 million euros to 38 million at the close of March 2015.

Regional governments

The deficit posted by the regional governments in the first quarter fell by 23.3% compared with the same period in 2014 to 2.19 billion euros. In terms of GDP, the deficit is 0.20%, lower than the figure of 0.27% posted by this sub-sector in the same period in 2014.

This result stems from a 3.8% increase in non-financial resources and a 1.7% increase in non-financial expenses.