The Spanish Government sets new deficit targets without agreement from neither the EU nor the Autonomous Communities

The Catalan Government considers the Spanish Government to be “disloyal” for unilaterally setting the new deficit objectives and for not allowing the same degree of flexibility to the autonomous communities, who manage all basic services. The Autonomies’ new deficit target has been set at 1.5% while that of the Spanish Government is set at 4%. Mariano Rajoy has announced that Spain will have a total public deficit of 5.8% of its GDP, and not the 4.4% previously agreed with the rest of the European Union Member States. Rajoy has argued that, with a recession coming, the situation has changed and the stability pact foresees changing the targets.

CNA / Gaspar Pericay Coll

March 2, 2012 10:38 PM

Barcelona (ACN).- The Spanish Prime Minister, Mariano Rajoy, announced on Friday in Brussels that Spain will have a total public deficit of 5.8% in 2012, and not the 4.4% that had been agreed with the European Union. Rajoy took the decision without consulting with the EU institutions, the rest of the Member States or the Autonomous Communities. The Catalan Government’s Spokesperson, Francesc Homs, considered the Spanish Government’s decision to be “disloyal”, as it also sets a new deficit target for Catalonia, but without any consultation with Barcelona. Furthermore, Homs said that the Spanish Government has given himself much more flexibility to that given to the Autonomous Communities, despite the latter managing all basic services, such as healthcare, education and social policies. “I have not consulted with European leaders and I will not inform the European Commission until April; I do not have to do it because it is a sovereign decision”, stated Rajoy in Brussels. However, the Spanish Prime Minister said that the new deficit targets are in line with all the treaties and agreements taken at an EU level, despite not meeting with the expected 4.4% deficit target. In fact, the new EU stability treaty foresees reviewing the deficit targets for natural disasters or economic recessions. On Friday, the Spanish Government announced that Spain’s GDP will fall by 1.7% in 2012. In the last few weeks, Rajoy had been asking the EU to review the public deficit targets, taking into account the forecasted recession and the 8.5% deficit Spain had in 2011, before he took office. However, the European Commission and some EU Member States such as Sweden and Germany refused to greater flexibility on the deficit targets, until Spain presents its budget for 2012. On Friday the Spanish Government presented the macroeconomic figures of the budget it is preparing; minutes before Rajoy announced in Brussels, just after the European Council’s summit, the new deficit target of 5.8% for 2012. Rajoy also emphasised that in 2013, Spain will have a total deficit of 3%, in line with the deficit targets previously agreed at EU level.

The new 5.8% deficit target for 2012 set by Mariano Rajoy for the public sector in Spain is split among the different government levels: the Spanish Government, the Autonomous Communities and the local governments. It needs to be said that the Spanish Government is responsible for roughly half of public spending in Spain, but does not manage Welfare State policies, which are run at regional level. The Autonomous Communities are responsible for just less than 40% of public spending, although Catalonia’s share is higher since it has more devolved powers, such as police and prisons. Finally, the local government share roughly corresponds to just above 10% of the total public spending.

The Spanish Government increases its deficit target by 42.8% while the Autonomies are only allowed a 15.4% increase

With the Spanish Government’s new public deficit targets, the Autonomous Communities will have to end 2012 with a public deficit of 1.5% of their GDP, instead of the previous 1.3% deficit objective. This allows the Autonomous Communities’ to have a deficit target 15.4% higher than the previous objective. The deficit target for local governments is kept at 0.3%. However, the Spanish Government will have a new target of 4%, which represents a deficit increase of 25% in relation to the previous objective. Furthermore, the Spanish Government directly manages the Social Security Treasury, which pays all the contributory pensions and unemployment benefits in Spain. Social Security was meant to have a budget surplus of 0.4% in 2011, and the same figure for 2012. However, with Friday’s revision, Social Security is expected to end the year without a budget surplus, but also without a deficit. Putting together all the public sector directly managed by the Spanish Government, it will pass from a 2.8% deficit target to a new target of 4%, which means a 42.9% increase.

The Catalan Government criticised the new deficit targets. The Spokesperson for the Catalan Government, Francesc Homs, asked the Spanish Government to review them and set them “proportionally”, to adapt them to the real spending of the Autonomous Communities, which manage all basic services. “The objective must be reviewed in a proportional way, taking into account those public administrations that have control over the Welfare State”, he stated. “The public administrations providing the Welfare State services will be less benefited [from the deficit target revision], than the Spanish Government’s administration, which does not provide this kind of service”, he continued. Homs also criticised the “institutional disloyalty” shown by Rajoy for not having consulted with the Autonomous Communities before setting their new deficit target from 1.3% to 1.5%. However, despite the criticism, Homs celebrated the “realism exercise” made by Rajoy by not forcing Spanish citizens to suffer €40 billion budget cuts in order to pass from a 8.5% deficit in 2011 to a 4.4% deficit in 2012, coinciding with an economic recession that is starting. Homs added that the Catalan Government has been doing that “over the last 14 months”, by refusing to meet the deficit objective for 2011 imposed by the Spanish Government and planning the adjustment over two years.