The State deficit shrank to 1.14% of GDP in the first half-year

State deficit (June)

In the period January-June, the State posted a deficit of 13.25 billion euros, 38.4% less than in the first half-year of 2016. In GDP terms, the State deficit was equivalent to 1.14%, 0.79 percentage points less than the same period 2016.

If we exclude accrued interest, the State has a primary surplus of 114 million euros compared with the negative primary balance of 7.48 billion recorded in the first half-year of 2016.

Non-financial state revenue

In the first half-year, non-financial state revenue amounted to 84.30 billion euros, compared with the 80.02 billion recorded in the same period 2016.

Revenues from taxes and social security contributions amounted to 78.04 billion euros, of which 24.23 billion correspond to current tax on income and property, and 49.92 billion to tax on production and imports, up by 5.7% largely due to the performance of tax revenue from VAT which grew by 6.6% compared with the first half-year of 2016.

With regard to other revenues, interest income grew by 5.7 %. Conversely dividends and other income shrank by 12.7% due to Bank of Spain profits falling by 519 million euros, which was partially offset by dividends from ENAIRE amounting to 292 million, with no corresponding amount in 2016.

Non-financial state expenditure

As at June 2017, non-financial state expenditure stood at 97.55 billion euros, 3.9% lower than in the same period 2016.

Current and capital transfers between Government Authorities, which are the largest expenditure items (56.2% of State spending), totalled 54.81 billion, down by 4.4%.

This drop was due to the lower volume of transfers made to the State Public Employment Service to finance unemployment benefits, down by 1.51 billion euros. Also lower was the volume of transfers to the Autonomous Regions, down by 1.2%, and the volume of transfers to Central Government bodies, down by 14%.

Expenditure on intermediate consumption also shrank by 7%, as did employee remuneration expense, down by 5.4%, and accrued interest, down by 4.6%. Other items recording decreases were current international cooperation and the contribution to the EU, down by 14.7% and 12% respectively.

Among the items of current expenditure which increased were social benefits other than social transfers in kind, which grew by 1.6% as a result of the growing cost of civil service pensions, up by 3.9% over the same period 2016. Other current expenditure also increased by 30.9%, almost entirely due to the 533 million euro increase in spending compared with 2016, to cover the electricity deficit, which is funded by increased taxation.

Among capital spending we would highlight investment aid, up by 26.6% due to contributions to ADIF-High Speed in the amount of 187 million euros. Meanwhile, gross capital formation totalled 2.13 billion, 2.5% less than in 2016.

Combined deficit of the Central Government, Autonomous Regions and Social Security (May)

In the period January-May the consolidated deficit of the Government Authorities, excluding Local Authorities, fell to 1.59% of GDP compared with the 2.17% recorded in the same period the previous year. This figure excludes the net balance of aid to financial institutions, which at month-end May posted a negative figure of 299 million euros.

Central Government

The Central Government recorded a deficit of 15.75 billion euros at month-end May, equivalent to 1.35% of GDP, excluding financial aid. The balance of the Central Government includes the State balance and that of Central Government bodies:

• The State deficit to May is 16.10 billion euros, 1.38% of GDP.
• Central Government agencies to month-end May posted a surplus of 50 million euros, compared with the deficit of 322 million recorded in the same period of the previous year, largely due to the fact that in 2016 the Fund for Orderly Ban Restructuring (Spanish acronym: FROB), as a shareholder of Sareb, contributed to a capital increase in the amount of 996 million, a transaction with no corresponding amount this year.

Autonomous Regions

To month-end May the deficit of the Autonomous Regions amounted to 4.82 billion euros. In GDP terms, the deficit ratio for the subsector stood at 0.41%, 0.10 points higher than last year's figure. Revenues from this subsector have grown by 0.1% in these first five months of the year, compared with a 2.3% growth in autonomous region spending.

Social Security funds

Social Security funds posted a surplus of 2.13 billion euros, equivalent to 0.18% of GDP. In this subsector we would highlight the positive performance by revenues from social security contributions, up by 2.60 billion, offset by the 13.2% decrease in transfers received from the State, and the 50.9% drop in interest generated by the Social Security Reserve Fund.

As at May the Social Security System posted a surplus of 1.19 billion euros, due to spending growing by 3.2% while revenues increased by 3.9%. The main reason behind this situation was the 5% increase in revenue from social security contributions to May this year, in turn explained on the one hand by the growing number of contributors, up by 3.9% to May, and on the other by the impact of raising the maximum contribution bases by 3% and the minimum by 8%, due to a higher interprofessional minimum wage.

Meanwhile, in the period January-May the State Public Employment Service posted a surplus of 927 million euros, equivalent to 0.08% of GDP, compared with the 0.10% of GDP recorded in the same month of the previous year. The drop in the surplus is the result of lower transfers received from the State to finance unemployment benefits, by almost 1.30 billion, on the back of the positive performance of the job market.

Finally, the Wage Guarantee Fund (Spanish acronym, FOGASA, posted a surplus of 10 million euros, compared with the 135 million euro deficit recorded in May 2016.