Treasury multiplies the increase in the spending ceiling by five for 2024 and expects a 9% rebound in income
On Tuesday, the Government presented the spending ceiling with which it is preparing the General State Budget project (PGE) for 2024. A non-financial spending limit that represents a new historical record – it is already the fifth consecutive time that it has happened since 2020 – which amounts to 189,215 million euros without European funds. This figure implies an increase in the legal spending limit of 16,150 million compared to 2023 (9.3%). An increase that multiplies by five the increase in the spending ceiling that was approved for the 2023 public accounts.
The Ministry of Finance has reserved an important margin to increase spending in a year in which European fiscal rules will operate again. And, with them, the sanctions on countries that deviate from the limits established by Brussels.
However, the Executive is convinced that it can afford to spend up to 16,150 million more next year and at the same time meet the deficit objective of 3% of GDP demanded by the EU without making adjustments. Sources from the department headed by María Jesús Montero state that increasing the spending ceiling and reducing the public deficit at the same time is possible because Spain will continue to grow and create jobs next year as well.
If jobs continue to be created and the economy continues to grow, tax collection will continue to improve. The more workers there are in the labor market, the more is collected through personal income tax and social contributions and the greater the consumption, the more income is obtained through VAT.. At the same time, if unemployment is reduced, expenditure on social benefits automatically falls.. Proof of this is the spending data on unemployment benefits from the SEPE, which will close the year with a surplus of 5.7 billion. All of this results in larger tax revenues that generate more margin for spending.
The fourth vice president and Minister of Finance, María Jesús Montero, announced on Tuesday that tax revenues will increase by around 9% next year. A forecast that even exceeds the expectation raised last year for the 2023 Budget (an increase of 7.7%).
In fact, María Jesús Montero herself, fourth vice president and Minister of Finance, maintains that the spending ceiling that has been approved is below the recommendation of the European Commission for Spain (not increasing current primary spending net of income measures more than 18,617 million euros). Therefore, the head of the Treasury sees room to also extend to next year some of the anti-crisis measures that end on December 31. However, Montero has not revealed which one and will wait until the end of December to make a decision.
In any case, the Executive's spending calculations are conditioned on how the economy behaves next year.. An exercise in which the majority of analysts believe that Spain will grow above the large economies of the EU, but that will be marked by the stagnation of the euro countries. The latest forecasts of the Executive predicted a GDP increase of 2% in 2024 and the creation of 700,000 jobs between this year and the next. If expectations are not met and income is ultimately lower than expected, Spain could be faced with failing to meet the European deficit target.
What is that margin going to be spent on?
The Executive has not yet specified how it will distribute those 16,150 million euros of extra spending that has been reserved for 2024. However, there are some games that are already known. This is the case of the salary increase for state public employees, which the Government itself estimates will cost 4,746 million.
Another part will be used to cover the social measures that Pedro Sánchez promised during his investiture.. Among them, the extension of the VAT reduction on certain basic foods until June 2024 or the free public transport for young people and the unemployed stand out.. The extension of this tax reduction could mean a cost of around 1,100 million, if we extrapolate Airef calculations for 2023. Free transportation is more difficult to estimate. However, before announcing it, the Government was already planning to allocate 1,440 million more to subsidize transportation in 2024.
Furthermore, to this increase in spending it will be necessary to add possibly the increase in the transfers that the State makes to Social Security to cover part of the contributory deficit of this organization, as established in the Toledo Pact.. Although Social Security—and, therefore, pensions—are outside the scope of the state spending ceiling, the transfers made by the State are limited by the non-financial spending limit. For 2023, the Government budgeted 19,888 million in transfers to Social Security, which represented an increase of 1,500 million compared to the previous year, which was counted for the purposes of the spending limit. However, the Treasury has not yet reported the volume that will be transferred to Social Security in 2024.