MADRID: Spain's budget watchdog said on Wednesday public finances had taken a turn for the worse, putting the country on course to miss its deficit target. On the same day, the caretaker government raided a reserve fund for the second time this month to pay pensioners.
Madrid is already facing European Union sanctions for breaching fiscal rules in 2015, when it did not sufficiently trim its excessive deficit.
The European Commission is due to propose possible fines by the end of July. Budget supervisor AIReF said in a report on Wednesday that low inflation and weaker-than-expected tax revenues were making it harder for Spain to meet 2016 fiscal goals, while the social security system was likely to be way off its deficit targets.
This welfare system has repeatedly fallen short of its revenue goals even after Spain exited recession nearly three years ago. Unemployment remains high at around 21 percent of the workforce and the jobs that are returning are often poorly paid.
In another sign of the growing pressure, the acting government of Prime Minister Mariano Rajoy said on Wednesday it had tapped a social security reserve fund for the second time this month to pay pensioners.
This time it needed to draw 1 billion euros ($1.10 billion) in order to pay tax rebates due on pensions, leaving the reserve fund at 24.2 billion euros, down from 66.8 billion euros in 2011, before it started being drained.
Political parties agree that the social security system needs urgent reforms to broaden its financing channels, though such an overhaul has fallen on the backburner seven months into a government limbo caused by two inconclusive elections.
'OUTLOOK HAS DETERIORATED'
The budget watchdog had said in April that plans by Spain's interim government to cut the deficit to 3.6 percent of economic output in 2016 from 5 percent in 2015 were ambitious but achievable, putting its own central scenario at just under 4 percent.
But it warned on Wednesday the shortfall was now likely to be between 4.1 percent and 4.7 percent. The final figure will depend on whether Madrid can deliver on plans to raise an extra 6 billion euros ($6.6 billion) in corporate tax, as outlined by ministers in July, AIReF added.
"The situation and outlook for public finances have progressively deteriorated. The AIReF believes that it is improbable that the government will meet its deficit goal," the watchdog said.
The political stalemate has made it harder to steer public finances back on course and also delayed budget planning for 2017, raising the prospect of the deficit problems dragging on at a time when talks to form a coalition have yet to bear fruit.
The government usually sets public spending limits for the coming year around July, but the process for 2017 has yet to start.
Comments
Comments are closed.