Inconsistencies in Spain's Budget Suggest Deficit will be 7% not 5.3%; Andalucia Regional Government Will Not Agree to Deficit Targets; Only 26% Trust Prime Minister to Overcome Crisis
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Courtesy of Google translate, please consider The inconsistencies of the State Budget for 2012
Much is written these days about the budget submitted by the Government for 2012, which proposes that the deficit be lowered to 5.3% of GDP. In this article we focus not on a comprehensive analysis of these items but in both revenue and expenditure forecasts which seem less realistic.Regional Governments in Spotlight
The first of these items is to transfer the SPEE (State Employment Service, former INEM). The government budgeted a reduction of 15.6% (2,464,000), arguing that many are unemployed benefits are ending.
Since the Government is assuming that unemployment will increase this year over 600,000 people, there is no reason for us to see a turnaround, quite the contrary. In view of the numbers a reasonable assumption would be a 10% increase in unemployment benefits starting in 2012. This means a delay of nearly 4,500 million from the budget, ie 0.4% of GDP.
A second item of expenditure in which there are serious inconsistencies is Social Security. In the Budget is expected to increase costs (which are mainly pensions) of 0.9%. This assumption might have been possible if the pension had not been updated with the CPI, but in current circumstances is totally unworkable. In fact, the costs to February are up 3.7%. This would lead to a lag in the game cost about 3,300 million.
Noninterest income on Social Security, the Budget provided for 119.884 million euros. However, revenues in 2011 were 118.436 million, down 0.5% compared to 2010. This projected increase is totally impossible with the dynamics of job destruction to which we have referred. Since July we have seen that affiliations have fallen to an average of 50,000 per month (corrected for seasonality), which would lead to a decrease of 3.6% at the end of the year, unless economic recovery unlikely. As wage increases are below 2% on average, this would be a scenario of falling revenues or more than 1%, which is, a lag of about 2,600 million between government forecasts and estimates more reasonable.
On the revenue side, there are likewise transcendental inconsistencies in almost every game. Starting with the income tax, the government plans to enter under this heading 73.106 million compared to 69.803 million actually collected in 2011 (+4.7%). However, in the first two months of the year for income tax revenues fell by 2.8%.
In February, with the rise of income tax already in place, revenue rose only 1%. With the increase in unemployment that is occurring is expected that this increase of 1% will decline as the months pass and the collection ends, in a reasonable way, more in line with 2011.
Regarding indirect taxes, the picture is similar. The Government anticipates a reduction in revenue of 3%, but in the first two months of actual observed reduction is 8.4% (5.7% in February). In view of the data that come out of consumption and investment is likely that total revenue in 2012 falls into the environment seen in the month of February or possibly slightly less. This will yield a lag of about 1,500 to 2,000 million in revenue, that is, another 0.2% of GDP.
Add It Up
Adding all detected mismatches (focusing only on large items), 5.3% deficit forecast by the government would really be 7%. And even supposing that regional governments and municipalities comply scrupulously with the objectives of spending, which bodes extremely difficult, so the end result of the exercise would be even worse than the above 7%.
I have been saying for what seems like forever that Spain would not makes its budget. It won't, and we have a starting point for how bad it might get.
Note that text above on regional governments.
My friend Bran who lives in Spain writes ...
Hello MishNo Trust in Prime Minister Mariano Rajoy
Andalucia is the only autonomous region (another abstained) not to agree to a 1.5% deficit this year. Andalucia criticizes government attempts to undermine its 2011 deficit figure, and argues that according to law the limits of ratio for state debt are 20% central , 75% regional , 5% private state partnership.
They also argue that the central government has not paid several billion due to them, and that it is unfair that the state deficit is to be 5.3% , and yet regions are to only be allowed 1.5% deficit. Andalucia being 'not PP' is taking its own stance hence.
That comment about Andalucia being 'not PP' refers to the "People's Party" led by Prime Minister Mariano Rajoy.
Speaking of which (and also via Google translate) Only 26% of voters trust Rajoy of the PP to overcome the crisis
The Prime Minister is seeing increasing pessimism among voters who supported him in November 2011. The CIS barometer of March concluded that only 26.7% of PP voters trust the new government to improve the scenario in the country.Spain is already in an economic depression and the situation will become much worse.
The CIS survey also reveals that 35.7% of voters who supported Mariano Rajoy considers that the uncertainty will remain constant in Spain and 27% think worse.
These data reveal a growing tendency to pessimism by the voters themselves the Popular Party, and a bump in the strategy Rajoy, who from the campaign appealed to the confidence to regenerate the Spanish economy.
Growing pessimism in the first quarter
Increasing trend since January, when this same barometer revealed that 35% of PP voters believed that the government would achieve better Rajoy scenario in the country, representing a decrease of 10 points on the confidence generated in the last three months.
Pessimism is even higher among Socialist voters, UI and UPyD. In total, 37% opted for the situation worse, and 36% believe that there will be major changes.
Gonzalo Lira provided a better translation to the above article. He writes ...
Hello Mish,Conclusion, even members of his own political party do not think Prime Minister Rajoy can solve the problem.
You wrote: "Only 26% of voters trust Rajoy of the PP to overcome the crisis"
It's actually worse. The correct translation is: "Only 26% of PP voters trust Rajoy to overcome the crisis."
Mike "Mish" Shedlock
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