Government designs 2021 Budgets to cushion the impact of the pandemic

Spain will receive 71 million euros in transfers from the new EU Recovery Instrument, Next Generation

In the context of the economic crisis caused by the Covid-19 pandemic, the State approved on 28 October a draft budget for 2021 containing a record increase in spending of 550,484 million euros with the aim of mitigating the effects of the crisis and boosting an early recovery. This unprecedented expenditure represents an increase of 19.4% over the previous year, 13.6% excluding the 26,634 million for European funds.

On the other hand, a consolidated revenue budget of 323,996 million euros is foreseen, which represents a significant increase of 6.6% compared to 2020, thanks in large part to the European injection. Spain will be the second country to receive more funds, after Italy, under the new EU Recovery Instrument, Next Generation. A total of 71 million euros in transfers over the next few years to offset the deterioration in economic activity resulting from social distancing measures. In this way, the EU is making unprecedented resources available to Member States with the aim of cushioning the blow of the deep recession in the first half of this year, the largest since the Second World War.

“A responsible fiscal policy for financial and environmental sustainability is to be put in place to ensure future growth and to prevent future pandemics”, promises the Government in the executive summary of the 2021 General State Budget Project.

Pensions and unemployment, protagonists of budgeted expenditure

According to the Draft Law on General State Budgets for 2021, public expenditure amounts to 383,542 million euros, 33% more than in 2020. Of this total, 239.76 million would be earmarked for social spending, an increase of 10.3%. Las pensiones, con más de 163.000 millones, son la mayor partida. As the population ages, the pension bill rises, as shown by the trend of the last decade and a half.

Together with unemployment, which stands at 25 million in 2021, representing a 20% change over the previous year, both assets account for more than 50% of budget spending.

Housing, Tourism, Infrastructure and Industry and Energy, which have most noticed the budgetary variation

Although spending has generally risen, there are some sectors that stand out for the spectacular variation in their budget. This is the case of Housing and Building Development, which has a budget item of 2,253 million, almost five times the budget for the previous year. It has also noted a significant increase in Trade, Tourism and SMEs, whose 2.23 billion euros more than double the 2020 figure.

On the other hand, for next year the General State Budget has 11,527 million allocated to infrastructure, 115% more than the previous year. This amount will be borne by the national budget at 59 per cent and the remaining 41 per cent by the funds of the European Union Resilience and Recovery Facility. Industry and Energy policy has also doubled its resources, reaching 11,166 million. Of these, 5,623 come from project funding from the European Union Resilience and Recovery Facility.

Emphasis on Education, Science and Health

The accounts show the commitment of the government to reach 5% of GDP in educational investment, which has grown by 70.2% when the education budget reached 4,893 million by 2021, largely thanks to the European injection. The biggest beneficiaries of this extra investment are scholarships, early childhood education and the modernization of vocational training.

On the other hand, after a decade of cuts and lack of reforms, the state bets on science with forcefulness: 11,483 million for research and innovation in health and the promotion of business R&D&I and the science industry. This is the highest growth in the budget since 2000, 80% more than in 2020.

Finally, Health will receive a total amount of EUR 2,945 million thanks to the allocations funded under the Recovery and Resilience Facility and the Recovery Assistance for Cohesion and the territories of Europe.

Relief for the cultural sector

The cultural sector, deeply affected by the pandemic, has a budget of EUR 948 million, a modest increase of 3.7% over last year’s budget. To this must be added the 200 million from the European fund, which brings the figure to 1,148 million. This extra increases the variation compared to 2020 to 25.6%.

Promotion of equality policies and citizen care

451 million for the department of Irene Montero, whose ministry has seen the greatest increase, behind that of Labor. Most of the funds will be used for reconciliation programmes and the fight against male violence. In addition, maternity and paternity leave for the first time in history will be equated next year. The Personal Autonomy and Care System, on the other hand, provides for a budget of 2,354 million euros, representing an increase of 603 million over 2020.

Salary increase for the Government and civil servants

The accounts provide for an increase of 0.9 per cent for members of the Government and for the nearly three million public workers in the central administration, the social security system and the various autonomous bodies.

Tax revenues grow by 13%

Budgets for 2021 estimate a revenue of 255,631 million euros, of which 222,107 million euros correspond to tax revenues. In this line, one of the most controversial measures has been the increase in the tax on diesel, which has created discontent in the PNV and Ciudadanos. In the income chapter also highlights an increase in personal income tax to a few taxpayers of income (0.08% of total filers) exceeding 300,000 euros, in addition to an increase of three points for capital income of more than 200,000 euros.

To these figures must be added the expected income from social contributions (125,144 million), within the Social Security budget.

 

Despite the reluctance of some parties to budget expectations, the state remains optimistic in its forecast for 2021 and foresees “a growth that will be reinforced by the Recovery, Transformation and Resilience Plan, which may lead to a real GDP growth rate of 9.8%,” according to the General Budget Bill. The aim is to close the gap opened by the fall of 2020.

 

For more information: https://www.sepg.pap.hacienda.gob.es/sitios/sepg/es-ES/Presupuestos/PGE/Documents/LIBROAMARILLO2021.pdf

 

Blanca López Fiñaga, Vilanova i la Geltrú, 13/11/2020

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