State Budget
Politics 07/10/2021

€40bn in investments and 60% on social spending: Spanish government begins to process State Budget

Cabinet approves public accounts, with an expenditure ceiling of €169bn

3 min
The Minister of Finance and Public Function, María Jesús Montero, at a press conference at Moncloa

MadridFirst step for the general state budgets for 2022. The cabinet has approved the draft budget for next year after the Socialists and Unidas Podemos finally reached an agreement after tough negotiations in recent weeks. At a press conference, the Finance Minister María Jesús Montero anticipated on Thursday that they will again be "expansive" budget (the expenditure ceiling will be slightly higher than last year's, €169bn) to fully address "the fair economic recovery" after the covid crisis. But now they are left with the most complicated part: obtaining other parties' support to get it through the Spanish Parliament, where the Finance Minister intends to present the budget them next week to explain the fine print. "I hope they are reasonable," said María Jesús Montero on the amendments opposition parties will be able to present from now on. The minister foresees "discreet" conversations and considers the Basque National Party (PNV) and Republican Left of Catalonia (ERC) as priority partners. The Ministry of Finance explains that the parties' main demands focus on investments and strategic projects that the Catalan and Basque governments want to finance through European funds.

As for the project approved on Thursday, Montero stressed that 60% of the budget will be allocated to social policies and recalled that European funds for the pandemic will also be used for this purpose. "This is a budget to ensure social cohesion," she summed up. And she specified that social spending will increase to €248m (including European funds). According to Treasury estimates, this translates into the fact that €6 in every €10 from future public accounts will be allocated to social policies.

"Young people, civil servants, pensioners and the middle and working class, who will have more public services, and entrepreneurs and the self-employed win," Montero has defended. In terms of youth policies, the State has set a budget of €12.6m (40% of which in housing), double the previous year's. Measures such as the €250-a-month "youth voucher" to help youngsters move out from their parents' homes and also an item that enables a €400 "cultural voucher" for 18-year-olds to spend on culture. In the end, it will not include bullfighting as a sector on which young people can spend public money. "Not all elements that the legislation considers culture will be included in this cultural voucher," the Ministry of Culture clarifies. On the other hand, next year's budget will not incorporate the extension of maternity and paternity leave as requested by Podemos.

Thr budget also incorporates changes for pensioners and civil servants. In the first case, about 10 million pensioners will see their pensions increase in line with the average CPI for the last twelve months. Thus, the Ministry of Finance estimates that pensions will increase between 2.2% and 2.3% next year. In turn, minimum and non-contributory pensions will increase by 3% in 2022. As for civil servants, new positions will be opened and the salary increase will finally be 2%.

Montero has also announced a "record" €40bn in investments. "It is the largest investment in history," the minister stressed, who also announced €11.3bn directly for industry and €11.8bn for infrastructure and mobility.

European funds and revenue

The Spanish government has already anticipated that the deep tax reform will be left for next year, but these accounts will include some modifications. It highlights the 15% minimum on the effective rate of corporate tax, as Unidas Podemos wanted. The Treasury estimates that the "small adjustment" of the tax will result in about €400bn and will have an impact on 1,070 companies, as Montero explained. The minister has detailed that they calculate an increase in tax revenues of 8.1%, a figure below the estimated growth of nominal GDP: "The improvement of the economy will allow a growth in personal income tax, VAT and corporate tax.

As for the deficit, Montero has placed it at 5% for next year and the debt forecast at 119% of GDP. The minister recalled that the deficit and debt rules will still be suspended next year (in Spain and in Europe) and, therefore, there are no mandatory deficit and debt targets.

Finally, the State budget will incorporate €27.6bn of European anti-pandemic funds. A large part will be allocated to industry and energy (19.8%); R+D and digitalisation, and infrastructures and resilient ecosystems (17.4%). Specifically, it means a 3.8% increase on last year.

The agreement was only reached on Tuesday morning, when a deal was also cut on the future state housing law. This includes guidelines to control the price of rents, especially in areas where they have risen sharply.

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