Spanish Government Ended 2013 in November to Reduce Deficit

Spain brought forward the deadline for approving spending in the annual budget for the second straight year in 2013 as officials battled to meet their deficit target.

The deadline for central government managers to submit requests to spend money from last year’s budget was set for Nov. 25 compared with Dec. 3 in 2012, according to Budget Ministry orders published in the Official Gazette. In 2011, the cutoff was Dec. 30.

Prime Minister Mariano Rajoy has made compliance with budget-deficit reduction targets set by the European Union a centerpiece of his strategy to restore Spanish credibility after exiting the country’s 41 billion-euro ($56 billion) bank bailout program. The maneuver to restrict spending may raise questions about how durable his budget fixes will prove.

“The government has used a series of one-offs -- reducing investment, or cutting Christmas bonuses -- which produce only a temporary adjustment,” said Ruben Segura-Cayuela, a London-based analyst at Bank of America Merrill Lynch. “A large part of the structural reduction of the public sector is still to be done.”

The government hasn’t estimated how much it saved by closing the budget earlier, a Madrid-based spokeswoman for the Budget Ministry said in an e-mailed response to questions. A deeper analysis can be done once the government publishes the full details of the 2013 budget, she said, asking not to be named in line with government practice.

Missing Targets

Spain has missed its EU budget-deficit goal every year since entering the Excessive Deficit Procedure in 2009. Last year the shortfall was 7 percent of gross domestic product compared with its objective of 6.5 percent, Budget Minister Cristobal Montoro told reporters in Madrid today after the weekly Cabinet meeting. Excluding aid to the banking sector, the gap was 6.62 percent.

Public spending fell during the final part of 2013, just as Budget Minister Cristobal Montoro tightened the rules for approving expenditure. Government spending dropped 3.5 percent in the fourth quarter in nominal terms compared with the same period a year earlier, even as Montoro reinstated an extra holiday-season payment for public workers. In the previous three months, government spending rose 0.2 percent from the year earlier.

Education, Health

The decline was due to spending cuts adopted mostly in 2012 that fed through into the government accounts last year, the Budget Ministry spokeswoman said. Regional governments contributed by imposing restrictions on education and health spending, she said. The government also changed its procedure for registering expenditure last year so that costs were more spread out over the year.

Since coming to office in December 2011, Montoro has used other short-term fixes in his battle to balance the books.

In December 2013, he canceled a planned 3.6 billion-euro payment to power companies intended to curb the off-balance-sheet debts building up in the electricity system. In March last year, the EU ordered Montoro to change his accounting methods to recognize tax rebates earlier, forcing the government to add 0.24 percentage points to the 2012 deficit.

Under Spanish law, officials need approval from the Government Comptroller’s office before they can sign off on spending and then account for it in the Budget Ministry’s books. The deadline for departmental managers to submit their initial spending proposals to the comptroller was also brought forward last year, with the cutoff on Nov. 4 instead of Nov. 7 in 2012.

‘Playing’

“By playing with the dates, the government makes it harder for officials to meet the deadlines for expenditure,” said Angel Laborda, a former head of government forecasting who is now chief economist at Madrid-based Funcas, the savings banks’ foundation. “Until 2011, the expenditure process in the central government has been open till well beyond Christmas.”

Spain’s structural budget deficit, which strips out the effect of the economic slump, was is still about 2 percent of GDP, former European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said March 12, citing estimates from analysts at Banco Bilbao Vizcaya Argentaria SA, where he is now a director.

That analysis shows that Rajoy needs to spend more “political capital” in order to fix the budget, Gonzalez-Paramo said at a briefing in Madrid.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Ben Sills, Eddie Buckle

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