State deficit falls by almost 9% in first two months of 2015

On Tuesday, the Ministry for the Treasury and Public Administration Services published the State deficit data for the period to February, as well as the data on the consolidated deficit of the Central Government, the regional governments and the Social Security system corresponding to the month of January in public accounting terms.

State deficit (February)

In the first two months of the year, the Spanish State posted a deficit of 11.82 billion euros. This represents a reduction of 8.8% on the same period of 2014. The State deficit equates to 1.09% of GDP, compared with 1.22% in February 2014 and representing a reduction of 0.13 percentage points of GDP.

Excluding expenditure on interest payments, which rose by 0.7% year-on-year, the primary deficit stood at 6.98 billion euros, a figure that reflects a 14.3% reduction when compared with the same period last year.

Non-financial State resources

To the end of February, non-financial State resources amounted to 23.89 billion euros. This is an increase of 6.7% on the same period in 2014. This result is due to positive tax revenue trends, which rose by 7.9% to 21.43 billion euros.

The increase in tax revenue offset the decrease in property income, which fell by 389 million euros when compared with 2014 (-49.3%) due to the lower interest charged to the regional authorities as a result of the extraordinary financing mechanisms stemming from Royal Decree-Law 17/2014 on financial sustainability measures for the regional governments and local authorities. This legislation set an interest rate of 0% in 2015 for all those loans that had been taken out by the regional governments and local authorities from the Financing Funds.

Transfers between public administration services rose by over 30%. This was basically due to a transfer of 230 million euros -with no corresponding transfer in 2014- made by the Spanish Medicines and Healthcare Products Agency to comply with one of the measures contained in the Public Administration Reform (CORA) aimed at avoiding public sector entities from accumulating treasury surpluses in excess of their annual spending budget.

Non-financial State expenses

To February, non-financial State expenses amounted to 35.71 billion euros - up 1% on the same period in 2014.

Current transfers between public administration services account for over 57% of non-financial expenditure, an increase of 1.3% to a total of 20.57 billion euros due to an increase in those received by the regional governments and local authorities. This increase was partially offset by a decrease in transfers to the Social Security Funds of 10.9% resulting from a decrease of 30.8% in those to the State Public Employment Service caused by a fall in unemployment benefits.

Expense trends include a 4.3% increase in labour costs to 2.75 billion euros, in turn including 153 million euros for the bonus payment in 2012. When excluding that amount, this heading shows a decrease of 1.5%.

Accrued interest also rose by 0.7%, as did social benefits other than social transfers in kind, by 2.8%, due to the increased cost of civil service pensions (up 3.4%).

Other expenditure on current operations fell by 1.4% due to a 31.1% decrease in other current transfers and a 62.1% decrease in social transfers in kind acquired in the market, which was partially offset by a 2.1% increase in contributions to the EU.

Under capital expenses, gross formation stood at 695 million euros - up 4.2% on 2014 due to increased military investment in the modernisation plan. The fall in capital transfers to the public administration services - from 444 million euros in 2014 to 228 million euros in 2015 - is due to an extraordinary increase under this heading in the same period in 2014 caused by the transfers made to ADIF (118 million euros) and the IDEA for PIVE 5 (175 million euros). When disregarding this effect, capital transfers between public administration services increased by 77 million euros to February.

Finally, investment subsidies and other capital transfers rose by 97 million euros - to 158 million euros - for the funding of special overseas programmes.

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

To the end of January 2015, the combined borrowing requirement of the Central Government, the Social Security Funds and the regional governments stands at 5.69 million euros, equal to 0.51% of GDP and slightly below the figure of 0.52% posted last year.

Central Government

The Central Government deficit rose by 2.6% from 6.51 billion euros in January 2014 to 6.68 billion euros at the end of January 2015. This was due to an increase in the deficit posted by the central government agencies, as the State deficit continued to fall in January. The deficit in this sub-sector stood at 0.62% of GDP at the end of January, unchanged from 2014.

• The State deficit fell by 1.8% to 6.13 billion euros in January, equal to 0.56% and a decrease of 0.03 points on the figure posted in 2014. This situation is the result of a 2.4% increase in non-financial resources (261 million euros more than last year) and a 0.9% increase in expenditure (148 million euros). The overall effect is a year-on-year reduction to the State deficit of 113 million euros.
• The central government agencies posted a deficit of 556 million euros at the end of January, compared with a deficit of 273 million euros in the same period of 2014. This result was influenced by a 234 million-euro injection forming part of the extraordinary allocation from the Deposit Guarantee Fund in 2014.

Social Security Funds

The Social Security Funds posted a surplus of 1.78 billion euros, equal to 0.16% of GDP and 0.07 points lower than in the same month in 2014.

The State Public Employment Service surplus rose to 298 million euros. This is 98 million euros higher than in January 2014, mainly due to a decrease in unemployment benefits (down by almost 17%) and an increase in National Insurance contributions (up 3.4%).

The Social Security system, which posted an increase of over 401,700 National Insurance contributors since January 2014, posted a surplus of 1.49 billion euros in the first month of the year. In terms of GDP, the system shifted from a surplus of 0.21% in January 2014 to a surplus of 0.14% in January 2015. Expenditure by the system rose by 4.6% due to an increase in social benefits (both contributory and non-contributory). In turn, revenue was affected by a 0.9% decrease in National Insurance contributions caused by the effect of the "flat rate" National Insurance contributions approved by Royal Decree-Law 3/2014, of 28 February. Transfers from the State also fell by 7.6%.

Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) posted a deficit of 1 million euros, compared with a deficit of 6 million euros in January 2014.

Regional governments

The deficit posted by the regional governments fell by 51.6% from 1.34 billion euros in January 2014 to 649 million euros in January 2015. In terms of GDP, the deficit posted by this sub-sector stands at 0.06% - a figure that is lower than the deficit of 0.13% of GDP posted in January 2014. This result stems from an 8.2% increase in non-financial resources and a 1.3% increase in non-financial expenses.
More early payments were made from the regional government financing system in the first month of the year, up to the effective implementation of the extraordinary financing measures for the regional governments approved by the Government of Spain. In total, 579 million euros have been paid out in early payments this year, compared with 242 million euros in January 2014.

When discounting the effect caused by said early payments in the two periods, the deficit would equate to 0.11% of GDP in 2015, 0.04 points less than in 2014.