In defence of Spain’s 2012 budget

MADRID | Elvira Rodríguez, who chairs the Spanish parliamentary committee on Economy and Competitiveness, and is a former State secretary for Budget and Expenditure, had two words to say about the government’s public budget: rigour and responsibility.

Rodríguez published Monday an op-ed in the business daily Cinco Días, probably in advance of the heaviest wave of criticism that the country’s budget plans have had to endure during the last decade. She imposed herself a difficult task, but an arguably necessary one since Europe’s eyes are watching Spain’s economic behaviour very intendedly indeed: will president Mariano Rajoy’s programme keep the nation at bail until global recovery steps in and rescues it instead of falling into the default trap?

After having marked a no-trespass line in front of Brussels’ demands for extreme austerity, Spain has now to deal with even more pressure to get it right and cut down its public deficit, reactivate its productivity and tame the unemployment dragon.

Rodríguez said today that it was a special budget, for many reasons:

“Without any control over monetary or exchange policies, the State budget is an essential tool in the hands of the government to achieve its primary objective, that is, wealth creation and, therefore, employment, without which it will be impossible to guarantee basic public services,” she warned.

She admitted that fiscal consolidation is the simple consequence of the trouble the country is experiencing in obtaining credit, but did not forget that

“it also is our unwavering commitment with our European partners and an indispensable decision to generate much needed confidence to restart funding flows.

“The State budget for 2012 is the adequate response to a deficit target of 3.5% of GDP for the central state administration, ie, it incorporates an adjustment of 1.6% over the last budget. But this adjustment does not reflect the reality of all the decisions taken, since in practice corresponds to a fiscal effort in the uncommitted transactions that is much higher.

“Indeed, the negative trend in public revenues due to the current economic conditions and the obligations derived from the interests to be paid, the territorial administrations’ financing and the non-contributory social security benefits and pensions have brought cuts in spending up to 2.5% of GDP, €27,3 billion, spread over tax measures, an 0.8%, and expenditure, 1.7%.

Rodríguez noted that current expenditures will be reduced by  €4.831 billion and capital expenditures will fall by €5.477 billion. Tax measures will raise income by €12.314 billion, although she highlighted that some of the changes in personal income tax are temporary.

“In any case, it is clear that the government and Spain are doing their homework.”

Details are coming on Tuesday. And this time, the audience will need more than hopeful phrases to give an approval.