State reduces its deficit to 1.94% of GDP in October

On Tuesday, the Ministry of the Treasury and Public Function published the State deficit for the month of October on its website, as well as the joint deficit of the Central Government, the regional governments and the Social Security system, excluding local authorities, for the month of September, in national accounting terms.

State deficit (October)

The State posted a deficit of 21.66 billion euros up to the month of October, equivalent to 1.94% of GDP. This deficit ratio is 0.61 percentage points lower than that posted in the previous month, when it stood at 2.55% of GDP.

The improvement in the State deficit is mainly due to increased revenue from the second partial payment of Corporate Income Tax, following the entry into force of Royal Decree-Law 2/2016, of 30 September.

Non-financial State resources

Non-financial State resources amounted to 148.3 billion euros until October, a year-on-year decline of 1.3%, significantly slower than the rates posted in previous months.

Fiscal revenue, taxation and social security contributions amounted to 134.96 billion euros, of which 75.34 billion correspond to tax on production and imports, which includes VAT, which posted year-on-year growth of 2.1%. In turn, current taxes on income and assets amounted to 53.17 billion euros.

This group of taxes includes Personal Income Tax, which fell by 7.7%, mainly due to the settlement of the financing system corresponding to 2014 which led to less revenue for the State for the sum of 2.13 billion euros, which was only partially offset by the increase in deductions on employment, which increased by 2.1% despite the impact of the tax reform. Noteworthy was the 1.1% increase in Corporate Income Tax in the month, due to the aforementioned effect of the second partial payment of the year.

In terms of other resources, income from property rose by 19%, mainly due to higher dividends from the Bank of Spain and ENAIRE and due to the interest accrued on loans granted and charged to the funds to finance regional governments and local authorities, which rose by 17%.

Non-financial State expenditure

Non-financial State expenditure stood at 169.96 billion euros until October, a fall of 1.3%.

A generalised fall in the main expenditure headings was observed, with a 4.7% decline in interest and 4.1% in intermediate consumption. Current transfers between public authorities, the largest item of expenditure, fell by 0.8%, mainly due to fewer transfers made to the State Public Employment Service to the sum of 5.17 billion euros, thanks to the favourable development of the job market. In terms of capital spending, gross fixed capital formation fell by 6.8% year-on-year.

Among the headings of current spending that increased, noteworthy is that of social benefits other than social transfers in kind, which rose by 6.4% year-on-year, mainly as a result of increased spending on pensions for former public servants. The remuneration of salaried public workers also rose by 0.3%, due to the 1% salary increase to public servants in 2016.

Joint deficit of Central Government, regional governments and Social Security system (September)

The joint deficit of the public authorities in the first three quarters of the year, excluding local authorities, amounted to 34.71 billion euros. This figure discounts the net balance of assistance for financial institutions, which at the end of September stood at minus 2.16 billion euros. The deficit in September is equivalent to 3.11% of GDP, lower than the 3.34% posted in the same period of 2015.

Central Government

Central Government posted a deficit of 2.36% of GDP at the end of the third quarter of the year, after excluding financial assistance. Without excluding this financial assistance, it would stand at 2.56% of GDP, including the State deficit (2.55% of GDP), as well as the deficit of the Central Government bodies (0.01% of GDP) for the month of September.

At any event, this figure, corresponding to the Central Government deficit, will fall in October in light of the reduction, already posted, in the State deficit (1.94% of GDP).

Regional governments

The regional governments have reduced their deficit until September by more than 81% on the same period last year, to amount to 0.19% of GDP, mainly due to the definitive settlement of 2014 performed back in July, with a balance in favour of the regional governments amounting to 7.67 billion euros.

Social Security Funds

Social Security Funds posted a deficit of 6.22 billion euros until September, equivalent to 0.56% of GDP, double the rate posted in the same period last year.

Noteworthy in the Social Security system is the rise in revenue from social contributions of almost 3% until September which, however, has been affected by the 100-euro flat rate introduced for contributions under permanent employment contracts, which means net job creation, and the exemption on the first 500 euros of salary for new permanent employment contracts.

The surplus of the State Public Employment Service has fallen, despite improvements in the job market, as a result of lower transfers received from the State. In turn, the Social Security system posted a deficit of 0.77% of GDP, compared with 0.69% posted in the same period of 2015. Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) reduced its deficit to 0.01% of GDP.