Spain reduces 2021 deficit to 6.7%

MADRIDSpain ended 2021 with a deficit of 6.76% of GDP, Finance Minister María Jesús Montero announced on Thursday. That is €81.5bn. This figure is much higher than the 2.9% it registered at the close of 2019, but much better than that recorded in 2020 (10.97%), the first year of the pandemic, when public spending soared to cope with the covid-19 health crisis. This means the State deficit has improved by over three points, moving away from the limits reached during the last two major crises – in 2010, as a result of the financial crisis, the deficit reached 11.2% – and is also moving away from the forecasts of the Spanish government itself, which had estimated that it would end 2021 with a deficit of 8.4%. This translates into an improvement in the deficit of up to €19.5bn compared to the government's forecast.

It should be borne in mind that the figures have been published at a time when fiscal rules have been suspended, both in Spain– it was endorsed by the Parliament - and in Europe. In fact, the Spanish government wants this to continue into 2023, and has made this known to Brussels. In any case, the Commission will make a decision in May. By administrations, it is the State with the biggest losses, closing 2021 with a deficit of 5.99% of GDP (89% of the total deficit); while the regional governments register a deficit of 0.3%; town councils, a surplus of 0.27% and, finally, the Social Security closed 2021 with a deficit of 1.02%.

In all cases, the deficit figures improved compared to forecasts, especially for the State, as a result of the improvement in tax collection. As reported by Montero, the Treasury collected €223.4bn, 15.1% more than in 2020. However, the Minister has claimed that this increase in collection is not the result of the rise in inflation, especially in the last months of 2021, but of the improvement in personal income tax (IRPF), as well as "the good performance of corporate tax". This is because in 2020 stricter restrictions paralysed economic activity and forced many workers into temporary lay-offs.

"The evolution is favourable," stressed Montero at the press conference. In fact, the final figure for the deficit is even better than forecasts made by some agencies, such as public auditor Airef, which pointed to a deficit of 7.9% for the whole of the public administrations for 2021. As for this year's deficit forecast, Montero has maintained that the government is on the right track to "meet the 5% target, always with caution", since the war may shake the government's plans for 2022.