State deficit stands at 2.66% of GDP in July

The performance data for the month of July include the final settlement of the regional government and local authority financing system for 2014, affecting both State revenue (due to the amounts received from regional governments) and expenditure (due to the amounts that the State is required to transfer to them).

Settlement of the regional government financing system for 2014 amounted to 7.89 billion euros, 6.9 billion euros more than the settlement paid in the previous year. The settlement amounted to 6.97 billion euros in favour of the regional governments and 924 million euros in favour of the local authorities.

Settlement of the financing system does not affect the joint public authority deficit but does affect the deficit of the various sub-sectors, representing a larger deficit for the State in July than will be offset by the improved balances of the regional governments and local authorities due to be published next month.

State deficit (July)

The Spanish State posted a deficit of 29.84 billion euros in July, 4.9 billion euros more than in the same period of 2015. This represents an increase of 19.6% on the previous year. The State deficit increase can be entirely explained by the settlement of the financing system for 2014 that was paid in July, which rose by 6.91 billion euros on the settlement paid in July last year. When excluding the settlement figures for both years, the State deficit would fall by 8.4% year-on-year.

The deficit stands at 2.66% of GDP, which is the result of revenue amounting to 8.4% of GDP and expenditure amounting to 11.06% of GDP.

Non-financial State resources

To July, non-financial State resources amounted to 94.19 billion euros, compared with 101.12 billion posted in the same period of 2015.

Tax and National Insurance revenue amounted to 84.27 billion euros, of which 53.36 billion euros correspond to taxes on production and imports, which grew by 1%, mainly due to a VAT revenue increase of 2.5% on the same period the previous year. In turn, current taxes on income and wealth amounted to 26.27 billion euros, a decrease of 19.8%. Personal Income Tax forms part of this group of taxes, which fell from 21.37 billion euros in 2015 to 18.51 billion euros this year. This was mainly due to the settlement of the financing system for 2014, which led to 2.13 billion euros less revenue for the State. As regards Corporate Income Tax, the downturn seen in previous months continues.

As regards other revenue, amounting to 9.92 billion euros, worthy of mention are the greater dividends from the Bank of Spain, up 48%.

Non-financial State expenses

Non-financial State expenses continued to fall in July, with a decrease of 1.6% to date this year to stand at 124.04 billion euros. This figure is also affected by the settlement of the financing system, which represents 7 billion euros of spending for the State. Disregarding the effect of the settlement of the financing system in 2015 and 2016, the non-financial expenditure decrease would stand at 3.4%.

An overall decrease has been recorded under the main expenditure headings, with a decrease of 5.1% on interest payments, 3.2% on intermediate consumption and 13.9% on the contribution to funding the European Union Budget. Current transfers between public authorities, which is the largest item, also decreased by 1.2% in 2015. There was a reduction of 4.46 billion euros in the transfers made to the State Public Employment Service to finance unemployment benefits due to positive trends in the labour market. In contrast, there was an increase in transfers to regional governments and local authorities due to the final settlement for 2014 and the larger payments on account made this year.

Among the revenue expenditure items that increased, it is worth highlighting social benefits other than social transfers in kind, which increased by 4.7%, mainly due to increased spending on pensions for retired public servants. Labour costs also increased by 1.3% due to the reimbursement of 50% of the bonus payment delayed in 2012, compared with the 25% that was reimbursed in the same period of 2015, and due to the 1% pay increase in 2016.

Under capital expenses, gross formation stood at 2.43 billion euros (down 0.1%) and maintained a similar level to that posted in 2015. Investment subsidies and other capital transfers fell to 341 million euros, as a contribution was made to ADIF in 2015 that has no corresponding entry in the 2016 accounts.

Furthermore, capital transfers fell from 2.39 billion euros in 2015 to 1.49 billion euros in 2016 as a result of operations in 2015 with no corresponding entries for this year, such as the transfers to the Spanish Energy Diversification and Saving Institute (334 million euros), Red.es (117 million euros) and the Centre for Industrial and Technological Development (300 million euros).