An untight budget
THE EURO ZONE ·
Sánchez's government is breathlessly excited about splashing so much money in a relatively short space of timeMark Nayler
Saturday, 30 October 2021, 11:24
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THE EURO ZONE ·
Sánchez's government is breathlessly excited about splashing so much money in a relatively short space of timeMark Nayler
Saturday, 30 October 2021, 11:24
When Spain's coalition government presented its 2022 budget at the beginning of October, it had already been delayed two weeks by disagreements between the Socialists and their more left wing junior partner, Podemos. Now, as we enter the last two months of the year, the spending plan has yet to be approved by congress, although it proposes generous Christmas bonuses to some of the parties whose votes Pedro Sánchez counts on. But because the Socialist leader can't do much without the support of his most committed adversaries, there's little chance that next year's fiscal blueprint will be passed before the end of 2021.
As far as the micro-managing accountants in Brussels are concerned, this is very bad news. The EU Commission has said that it wants to see progress in two major areas - pensions and the labour market - by the end of 2021. But labour reform is the main issue that the Socialists and Podemos disagree on, with the latter in favour of a complete overhaul of the company-biased measures Mariano Rajoy introduced in 2012 and the former advocating a more piecemeal approach. Spain is also awaiting an expert-authored report on how to shuffle its post-Covid public finances, but that's not due until next February. This means that any reforms that affect issues like debt-to-GDP ratio (currently flying high at 120%) and budget deficit are likely to be deferred until then.
Tensions within the government itself exist alongside cross-party animosity, which is ultimately the biggest threat to Sanchez's 2022 spending plan. Even if Catalan separatists are mollified by the 11.5% increase in their allocation of public funds next year (on top of the exceptional boost they secured last year for supporting the 2021 budget), the Conservatives are unlikely to be thrilled with a reduction of almost 8% for Madrid, currently under the control of Popular Party (PP) figurehead Isabel Ayuso, the Spanish opposition's most compelling voice (a coincidence?). I also wouldn't bet on the PP backing all the tax hikes that the government claims will raise an extra 232 billion euros in 2022.
The proposed budget for next year specifies a record-setting 196 billion euros of public spending, bolstered by 27 billion euros in Covid recovery grants from Brussels. Sánchez's government is breathlessly excited about splashing so much money in a relatively short space of time, but there's good reason to doubt its ability to do so effectively, or without wasting an inordinate amount on unprofitable, essentially pointless projects that the private sector has been unwilling to finance itself (probably for good reason). Opposition within and outside of government ranks makes the task even more difficult. Impatient as it is, the EU's going to have to wait for much longer than another two months to see its donation well spent.
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