Published on Monday, April 25, 2022

Spain | Structural imbalance

The Government's forecasts in the Stability Program should make it clear that economic recovery will not be enough to consistently reduce the public deficit. Everything points to part of the expenditure having taken a structural leap and that the historically high level of tax revenue is only temporary.

Key points

  • Key points:
  • Public expenditure ended 2021 at 50.5% of GDP — more than 8pp above that of 2019.
  • In the future, there will be an improvement in part of the expenditure thanks to the rise in inflation. For example, the public sector payroll and the consumption of intermediate goods will fall in relation to nominal GDP, as increases in salaries and input prices have already been set below the rate of inflation.
  • However, everything points to part of the expenditure having taken a structural leap. For example, unemployment is currently at the same level as 2019 and will do little to help reduce the deficit. The cost of servicing the debt will rise, while social expenditure (pensions) has increased permanently.
  • Tax burden has hit record highs. Without any major tax reforms having being introduced, it is difficult to see how tax revenue can remain at a level which is around 1pp of GDP above the average of the last 30 years.

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