MADRID | First quarter figures showed a marked deterioration in central government finances. Its gap has grown by ¾ as compared to the same period of the previous year, reaching 1.85% in terms of GDP. A most disappointing outcome that undermines firm pledges to slash deficit this year in a substantial way. Claims that more money has been pumped to regional authorities, pensions and unemployment benefits appear as futile excuses. For Madrid knows well that transfers to lower administration layers were bound to increase this year. And it is also well aware of the need to provide extra funds to balance the Social Security budget.
Tax receipts point to a more severe slowdown than predicted. The 10% fall in VAT mirrors the consumption slump while personal income tax follows a negative trend that the recent hike in rates has been unable to reverse. One-off items alleviate the situation but temporary relief will prove short-lived. In contrast, expenditure is flying high dashing hopes to rein it following the harsh cuts announced. A 21% annual rate of growth stands as vivid evidence of the inner difficulty to curb spending.
But the most worrying fact that emerges from the quarterly results is the lack of any sizeable bumper to address potential deviations. The budget seems committed to the last penny, leaving no room for any unexpected development. Most items fall under mandatory spending thus escaping any discipline unless sweeping reforms are undertaken. The scant discretionary amounts prove unable to match any major deviation. Current expenditure has been downsized by 40% reducing it to a negligible amount. Public investment follows a similar pattern. Together they represent less than 0,5% GDP in yearly terms.
Meeting the 5,3% deficit target seems out of reach. Even worse, these results depict the 2013 goal as utterly far-fetched and unrealistic. That comes at no surprise. Unless solid growth changes the whole picture, fiscal consolidation will never bridge the gap. Current austerity amounts to a self-defeating strategy. By depressing the economy it contributes to widen budgetary deficit. A vicious circle is the price to pay for such a short-sighted policy.