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Friday, September 21, 2012 12:18 PM

Spain's Fiscal Deficit 8.56% of GDP in First Half; Impossible Second Half Targets

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Spain's original deficit target for 2012 was 4.4%, then revised to 5% then 5.3%. The last revision brought the target all the way up to 6.3%. So how is Spain doing?

Via Google Translate Libre Mercado says Spain recorded a fiscal deficit of 8.56% of GDP in the first half

The government set the offset recorded 45.233 million euros to June, equivalent to 8.56% of GDP semester.

Now Available budget execution data of all public sector until the second quarter of the year, and the first assessment of the Government of Mariano Rajoy on the deficit is not exactly favorable. According to data from the State Comptroller (IGAE), Public Administration (AAPP) reported a gap between revenues and expenditures (deficit) 45,233,000 euros through June in terms of the excessive deficit procedure (EDP, the methodology valid for Eurostat).

This corresponds to 8.56% of GDP until the second quarter cumulative -528 161 000 euros, according to the National Statistics Institute (INE) -. Thus, Spain moves away from deficit target committed to Brussels for the full year, set at 6.3% of GDP.

Central Government, Regional Governments, Local Government and Social Security admitted 173,320 million during this period, but spent 218,553,000. That is, the overall public sector continued spending 26% more than they entered through fiscal. In fact, the cumulative deficit through June is just half the total phase shift recorded last year (91,344,000) so that, if not corrected this trend, Spain in 2012 recorded a deficit similar to 2011.
Impossible Second Half Targets

Rajoy is sticking to the 6.3% deficit target for the year.

Let's see how ridiculous that idea is with a calculation to figure out what the second half deficit must be to hit that target.

(8.56 + X) / 2 = 6.3
8.56 + X = 12.6
X = 12.6 - 8.56
X = 4.04

Assuming GDP stays constant (it won't, Spain's GDP will be worse in the second half, probably much worse), Spain would need a second half deficit of about 4% to reach its target.

No one can possibly think 4% is a credible second half target. Sure, numerous tax hikes will kick in (supposedly raising revenue). However, tax hikes will also suppress growth which in turn will suppress revenue.

Thus, VAT hikes will not bring in what the government anticipates. How can it with unemployment soaring?

Note that Spain's 2013 target was 3% (revised up to 4.5%). Spain will not hit that target either, and Brussels will be calling for still more tax hikes next year.

How long will Spanish citizens put up with this?

Mike "Mish" Shedlock
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