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EL Pais reports Spanish Public Debt Threatens to Exceed 100% of GDP in 2014
General government debt accumulated through February was 987.945 billion euros, an amount that represents 96.5% of gross domestic product (GDP). This represents a new record in the amount of money the state, communities, and the municipalities have to return to financial institutions and investment funds. In February alone, the government liabilities increased by 8.130 billion, up 8% from the previous month.Treasury Raises Less Than Expected Despite tax Increases
The debt problem is not just that you have to pay, but the difficulty to stop the frenzied pace to growing-has risen from 37% of GDP in 2007 to 96.5% seven years later.
If this pace continues, the liabilities of the government would scale up to 110% of GDP, an unknown dimension in the last century. Since the early twentieth century, when Spain had to attend entrained war debts of Cuba, the barrier was not exceeded 100%, according to the historical series of the IMF. The debt ended 2013 at 94% of GDP.
The threat that public debt exceeds the red line of 100% of GDP grows as government is unable to decisively reduce the public deficit. The 2014 budget is expected to be in the red by 60.7 billion, 5.8% of GDP.
In addition, the Executive will launch a new section of the Autonomous Liquidity Fund (FLA), liquidity to support to the regions, totaling 23 billion, representing about two-points of GDP. In total, the public debt will grow by about 80 billion, eight points of GDP during 2014. The level of liability of public institutions would reach 104% compared to 98.9% government projection earlier this year.
Compounding the spending problem, Treasury Raises Less Than Expected Despite tax Increases
Via translation from Libre Mercado
The Ministry of Finance announced 17 of every 100 workers are employed directly in government up 20% from levels 2007, when the ratio was 14%.Austerity In Spain? Where?
Speaking in net terms, the crisis has wiped out 3.6 million jobs in the private sector but has just reduced the workforce of 136,000 public employees. What does this mean? In essence, that 97% of the labor destruction has taken the private sector, while the government has just 3% of the course setting.
The situation is even more poignant when we realize the increase in spending on handpicked advisers. In 2013, the Ministries have triggered the eventual disbursement of staff salaries by 7.5%. Also the salaries of senior management have risen in 2013. Adding up all the costs of the central administration staff, we see that in 2013 an increase of 0.8% was recorded.
Although tax revenue was 37.8% of GDP and was in line with the historical average, the total outlay of the government in 2013 exceeded 44.4% of GDP. Grants have remained almost intact compared to 2012, while the total personnel costs assumed 900 billion euros.
To keep afloat these structures spending taxpayers in crisis have taken numerous tax increases. However, the resulting fiscal balance has not kept pace than projected by the Treasury:
- The tax on winnings from lottery has raised less than half of schedule in 2013.
- The 10% surcharge on excise duty on alcohol has not generated the expected returns, 70% lower than expected.
- Income tax collection has a gap of 6% vs expectations.
- The indirect quintessential tax generated 5% less than estimated by Treasury.
In sum, the income tax office have been 4.21% lower than projected. However, it is important to note that the number of taxpayers who pays this revenue has declined significantly as a result of mass unemployment and the destruction of businesses.
The biggest things Spain needs to do are cut public spending and public employment, and lower taxes. Instead, it raised taxes on those with real jobs.
It should be no surprise that revenues don't meet expectations and public spending has not declined.
In spite of all the howls from misguided Keynesians and Monetarists over alleged austerity, the approach Spain took is not "austerity", rather it is economic insanity.
By the way, debt does not "threaten" to exceed 100% of GDP, it is a near-certainty.
Mike "Mish" Shedlock