Regional authority deficit falls to 0.07% of GDP in July

The State deficit data for the month of August were published on Tuesday by the Ministry of the Treasury and Public Administration Services on its website, as were the data on the combined deficit of the Central Government, the regional governments and the Social Security system corresponding to the month of July in national accounting terms.

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

The consolidated deficit of the public authorities in the period January-July, excluding local authorities, amounted to 34.48 billion euros, equivalent to 3.09% of GDP. This figure excludes the net balance of aid to financial institutions, which stood at 1.96 billion euros negative at the end of July.

Settlement of the regional government financing system for 2014 was paid in July, amounting to 8.59 billion euros, 7.61 billion euros more than the settlement paid in the previous year. The budget execution data published today are affected by said settlement from the financing system, which represents a higher balance for the regional governments and, as a balancing entry, lower resources for the State to the same amount.

Central Government

Central Government posted a deficit of 27.79 billion euros at the end of July, equal to 2.49% of GDP - excluding financial aid. The Central Government balance includes the State balance, as well as that of Central Government agencies:

• The State deficit to July stands at 29.65 billion euros (2.66% of GDP).
• The Central Government agencies posted a deficit at the end of July of 98 million euros.

Regional governments

The regional governments have reduced their deficits by 90.3% in the first seven months of the year, to a negative balance of 830 million. In GDP terms, the regional governments deficit stood at 0.07% in July, compared with a deficit of 0.8% posted in the same period of 2015. Among other elements, this trend was caused by the final settlement of 2014 with a balance in favour of the regional governments amounting to 7.67 billion euros, while the final settlement of 2013 was also in favour of the regional governments but to the amount of 1.75 billion euros.

In total, seven regional governments posted a surplus in the period January-July.

Social Security Funds

The Social Security Funds posted a deficit of 5.86 billion euros to July, equivalent to 0.53% of GDP. Within this sub-sector, it is worth noting the 3.2% increase to July in revenue from National Insurance contributions, tripling the rate posted in the same period of 2015, when growth in National Insurance contributions stood at 1.1%.

The deficit posted by this sub-sector rose by 0.33 points of GDP when compared with last year, the result of a lower surplus posted by the State Public Employment Service (0.16% of GDP this year compared with 0.42% of GDP in the same period last year). This reduced surplus is due to fewer transfers received from the State to finance unemployment benefits resulting from favourable trends in the labour market. In turn, the Social Security system posted a deficit of 0.68% of GDP, a similar figure to that posted in the same period of 2015 (0.6% of GDP). Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) posted a deficit of 123 million euros, compared with 106 million euros posted in July 2015.

State deficit (August)

The Spanish State posted a deficit in August of 31.09 billion euros, 4.31 billion euros more than in the same period of 2015. 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 7.61 billion euros on the settlement paid last year. When excluding the settlement figures for both years, the State deficit would fall by 12.8% year-on-year in August.

The deficit stands at 2.79% of GDP, which is the result of revenue amounting to 9.59% of GDP and expenditure amounting to 12.37% of GDP.

Non-financial State resources

In the period January-August, non-financial State resources amounted to 106.93 billion, 5.3% less than in 2015.

Tax and National Insurance revenue amounted to 95.78 billion euros, of which 58.16 billion euros correspond to taxes on production and imports, with a noteworthy increase in VAT revenue of 3.7% on the same period the previous year. In turn, current taxes on income and wealth amounted to 32.38 billion euros, representing a decrease of 16%.

Personal Income Tax forms part of this group of taxes, which fell by 12.3%. This was mainly due to the settlement of the financing system for 2014, which led to 2.34 billion euros less revenue for the State, and, to a lesser degree, increased payments on account to the regional governments and the impact of the tax reform on personal income tax withholdings and wealth. As regards Corporate Income Tax, the downturn seen in previous months continues.

As regards all other resources, property income rose by 18% while the heading of dividends and other incomes rose by 21.8%, mainly due to increased dividends from the Bank of Spain.

Non-financial State expenses

Non-financial State expenses posted a reduction of 1.2% in the first eight months of the year to a total of 138.02 billion euros. This figure is also affected by the settlement of the financing system, which represents 7.93 billion euros of spending for the State. When disregarding the effect of the settlement of the financing system in 2015 and 2016, the non-financial expenditure decreased would stand at 3.5%.

An overall decrease has been recorded under the main expenditure headings, with a decrease of 4.8% on interest payments, 3% on intermediate consumption and 10.5% on the contribution to funding the European Union Budget. Reductions were also posted by current transfers between the public administration services, which are the largest item, from 80.62 billion in 2015 to 79.96 billion in 2016. There was a noteworthy reduction of 4.13 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 a 5.2% increase in transfers to the regional governments and a 6.1% increase in those to the local authorities due to the final settlement for 2014 and the larger payments on account made this year.

Social benefits other than social transfers in kind, which increased by 4.6%, mainly due to increased spending on pensions for former public servants. Labour costs also increased by 1.1% 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.

Investment subsidies and other capital transfers fell to 372 million euros, as a contribution was made to ADIF in 2015 that has no correlating entry in the 2016 accounts.

Furthermore, capital transfers fell from 2.55 billion euros in 2015 to 1.69 billion euros in 2016 as a result of operations in 2015 with no correlating 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).