Spain’s 2023 budgets are based on optimistic economic forecasts

Montero

Jakob Suwalski (Scope Ratings) | Yesterday, the Spanish parliament approved the budgets for 2023. The government’s starting point is real GDP growth of 2.1% in 2023, compared with our estimate for 1.0-1.5%. The IMF is forecasting 1.2% and the European Commission (EC) 1.0%. In addition, the government estimates an increase in tax revenues of around 6% next year, supported by a new tax on wealth and temporary taxes on the banks and energy firms, as well as a high level of Social Security contributions. In our view, this is very unlikely, given the fresh weakness in consumer and corporate confidence. It is likely that the growth in VAT and personal tax revenues loses impulse, hence the uncertainty over the forecasts for global fiscal revenues’ growth, as the Bank of Spain has highlighted.

Public spending in Spain is in a clear upward trend, reaching levels without precedent. Operating expenses are also on the way up, which reflects the rise in the budgets for health and social security and in the increase in spending on pensions planned for 2023. In Spain, pensions indexed to inflation will rise by around 8.5% in 2023. This will mean greater pressure on fiscal sustainability in the long term, if no compensatory measures are implemented, like increased penalisations for early retirement to minimise the difference between the effective retirement age and the legal one.

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