Spain | Same deficit, higher expenditure

Three years after the pandemic began, the imbalance in the public accounts looks to be finally returning to pre-COVID levels. However, public expenditure will be 6 pp of GDP higher than three years ago.

Key points

• Key points:
• Most analysts believe that the public deficit will end the year at around 4% of GDP, not too far off the level observed at the end of 2019 (2.9%). There are several factors that make this an extraordinary milestone.
• For example, in 2020, the decline in revenue was proportionally less than the decline in economic activity and growth during the recovery was stronger. This has caused the revenue ratio to climb from 39% of GDP before the pandemic to its current level of 44%.
• In addition, certain subsidies have been phased out, thus enabling expenditure to fall from over 50% of GDP in 2020 to 48% of GDP in 2022.
• The cause of the increase in tax receipts remains uncertain and the lack of measures that have discretionally increased the tax burden during the crisis raises doubts about the future sustainability of this revenue.
• While the difference in the deficit between 2019 and 2022 may be little more than one percentage point of GDP, public expenditure will now be 6 percentage points of GDP higher than what it was three years ago. Without tax measures to finance this increase, and with the impact of inflation on spending still to come, pressure on public finances may increase in the mid run.

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