State reduced its deficit by nearly 12% in first half of 2015

State deficit (June)

In the first half-year of 2015, the State posted a deficit of 23.45 billion euros, 11.7% less than in the same period of 2014. In GDP terms, the State deficit is the equivalent to 2.13%, 0.38 pp of GDP less than the deficit recorded in the first half-year of the previous year.

Excluding interest expense, the primary deficit is down by 26.6% to June, at 0.78% of GDP (versus the 1.11% recorded in 2014).

Non-financial State revenue

In the first half-year, non-financial State revenue amounted to 82.74 billion, with year-on-year growth of 2.7%.

This result is due to the positive performance of tax revenues that grew by 5.8% in the period January-June to a total of 72.73 billion euros, reflecting the improved economic activity and employment scenario in the first few months of 2015. Tax on production and imports grew by 6.2% in the first six months, mainly due to VAT revenues, which were up by 7% year-on-year. Current taxes on income and assets, which include revenue from personal income tax and corporate income tax, also grew significantly, with a 5.2% increase, despite the lower tax rates levied subsequent to the tax reform.

The increase in tax revenues offsets the decrease in property income, which fell by 42.9% in the first half of the year, as a result of two factors: a 31.7% drop in dividends due to falling dividends corresponding to the Bank of Spain, and lower interest income, which shrank by 51.2%. The drop in interest income was due to the fact that in 2015 an interest rate of 0% was set for all loans held by regional governments and local authorities drawn against extraordinary funding mechanisms, while in the first half-year of 2014, interest accrued from the Regional Liquidity Fund and the Fund for the Financing of Payments to Suppliers amounted to 1.17 billion euros.

Finally, increased transfers between public administration services amounted to 23.5%, due to a large extent to transfers from the Traffic Department and the Spanish Medicines and Healthcare Products Agency in the amounts of 376 million and 230 million, respectively, with no corresponding transfers in 2014. These transfers were made in application of a reform measure for the public administration provided by the Commission for the Reform of the Public Administration (Spanish acronym: CORA) whereby cash surpluses are transferred to the Treasury, thereby reducing the need to seek funding on the financial markets.

Non-financial State expenditure

Non-financial State expenditure totalled 106.18 billion euros, 0.9% less than in the first half-year of 2014. For the purpose of making a like-for-like comparison between the two periods, it should be noted that expenditure for 2015 includes operations with no corresponding expense in the same period of the previous year: the extra cost of the production of electrical energy in non-mainland territories and the reimbursement of 25% of the extra bonus payment from 2012. Excluding these two outlays, expenditure would have fallen by 1.4% to June.

Current transfers between public administration services, which account for the lion's share of all expenditure (55%), shrank by almost 3.4% year-on-year. This is largely due to a 22.5% decrease in transfers to social security funds, due to a 40.7% drop in transfers to the State Public Employment Service, reflecting the positive performance of the employment market. Conversely, transfers to the central government agencies grew, as did transfers to regional governments and local corporations, que which posted increases of 3.8% and 6.1% respectively.

A significant employment-related figure is the remuneration of salaried workers, down by 0.5% if we exclude the payment in January of 44 days of the extra bonus payment for 2012. Meanwhile, accrued interest is similar in both periods, 14.83 billion in 2014 and 14.84 billion in 2015.

Among the items that increased, note should be made of intermediary consumption, with 3.8% growth, due to the higher expenses related to the issue and placement of debt and as a result of higher electoral expenses compared with 2014. Social benefits other than social transfers in kind also grew by 4% due to the rise in civil service pensions, up by 3.3%.

With regard to capital expenditure, gross capital formation grew by 4.2%, while capital transfers to public administration services also grew, by 1.6%. Finally, investment grants and other capital transfers were up by 265 million euros, as a result of loan interest subsidy expense and the contribution made to the ADIF-high speed train programme, neither of which had any corresponding transfers in 2014.

Combined deficit of the Central Government and the Social Security System (May)

The combined deficit of the central government, regional governments and social security system to May totalled 24.01 billion, a figure equivalent to 2.19% of GDP. This ratio is lower by 0.15 percentage points than the one recorded in May 2014.

Central Government

The Central Government reduced its deficit by 7.3% to 22.22 billion euros. In GDP terms, the deficit of this subsector is 2.02%, below the 2.27% to May 2014. The central government balance includes the State deficit, which shrank by 10.9% to May, and the balance of central government agencies which posted a surplus equivalent to 0.1% of GDP.

Regional Governments

In the first five months of the year, regional governments reduced their deficit by 14.5% year-on-year to a total of 5.31 billion. In GDP percentage terms, the deficit is equivalent to 0.48%, a 0.11 point improvement compared with the deficit posted in the same period of 2014.

Prepayments made from the financing system amounted to 1.12 billion euros in 2015, 869 million less than in the previous year. If we exclude the effect of these prepayments in both periods, the deficit would be 21.5% less year-on-year.

In the autonomous regions, non-financial revenue grew by 2.2% year-on-year, while non-financial expenditure grew by 0.6%.

Social Security Funds

Social security funds posted a surplus of 3.52 billion euros to May, equivalent to 0.32% of GDP.

By agents, the social security system posted a surplus of 1.25 billion euros, equivalent to 0.11% of GDP. The State Public Employment Service grew its surplus by nearly 30%, to 2.38 billion euros, largely due to the decrease in unemployment benefits, down by 18%, and the 5% increase in national insurance contributions.

Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) reduced its deficit by 50.2% to 103 million euros.