Spain Announces Fiscal Measures to Rein in Public Deficit

  • Government moves to tackle regional budgets, corporate tax
  • Spain missed deadline to approve budget for 2017 amid impasse

Spain’s caretaker government announced steps to tackle the country’s deficit as it missed a deadline to approve a 2017 budget because of a nine-month political deadlock.

The People’s Party will present a proposal in parliament to update the nation’s deficit and public-debt targets as agreed with European authorities in Brussels, Acting Deputy Prime Minister Soraya Saenz de Santamaria said Friday. The move will allow Spanish regions to draft budgets for next year even if the central government can’t pass one.

“The caretaker government does not have the authority to approve a budget,” she said. “This minimizes the impact of not having one.”

Acting Prime Minister Mariano Rajoy’s caretaker administration is taking steps to keep the wheels of government turning during a political limbo that began in December when general elections failed to produce a clear winner. With the government missing a Sept. 30 deadline to pass a budget, the spending plan from 2016 will automatically be rolled over for next year if a new budget still isn’t in place by year-end.

Separately, Acting Budget Minister Cristobal Montoro announced an overhaul of the nation’s corporate-tax-payment system by decree to shore up the government’s ability to make up a shortfall in revenue.

Under the new rule, companies with revenues of more than 10 million euros a year will have to pay taxes up front at a rate of 23 percent for most firms and 25 percent for banks. The requirement will stay in place until the deficit falls below 3 percent of output, Montoro said.

“If we don’t do this, we’re going to see a reduction in revenue from corporate tax by an amount that we cannot afford,” he said. “This isn’t a tax hike, it’s an up-front payment.”

The government expects to raise 8.3 billion euros from corporate tax decree, according to the Prime Minister’s office website. Acting Economy Minister Luis de Guindos estimated the impact of the measure at 6 billion euros when it was first announced in July.

Spain faces demands from the European Commission, which oversees national budgets, to narrow its public deficit to 4.6 percent of output this year and 3.1 percent in 2017. The nation narrowly avoided a fine for missing its deficit reduction goal last year by almost 1 percentage point. A decision to freeze structural EU funds is still being considered.

In its latest economic bulletin published Sept. 29, the Bank of Spain said the country risks missing deficit goals because of a lack of government action. The central bank said the next government should enact a “restrictive” fiscal policy to enable it to meet its targets.

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