State reduces its deficit to 1.9% of GDP in first half of year

State deficit (June)

During the first half of the year, the State posted a deficit of 21.34 billion euros, 1.4% lower than in the corresponding half of 2015. In GDP terms, the State's deficit equates to 1.9%, 0.1% lower than the deficit recorded in the same half of 2015 and 0.2 percentage points lower than the deficit posted in the month of May.

Non-financial State resources

In the first half of the year, non-financial State resources amounted to 79.37 billion euros, compared with 82.59 billion posted in the same period of 2015.

Fiscal revenue, taxation and social security contributions amounted to 72.86 billion euros, of which 21.65 billion correspond to current taxes on income and assets, and 47.04 billion to tax on production and imports, which grew by 1.7%, mainly due to increased VAT collection, up by 2.7% on the same period last year.

Other revenue grew by 14.9%. Particularly worthy of mention is the heading of dividends and other income, with a 10.2% rise as a result of the dividends from the Bank of Spain.

Non-financial State expenditure

The reduction in non-financial State expenditure continued in the month of June, with an accumulated fall of 3.4% in the year to date, to 100.71 billion euros.

A generalised fall in the main expenditure headings was observed. Current expenditure has fallen by 3.9% year-on-year due to the fall in current transfers between different public authorities, which, with a volume of 56.15 billion euros, was the largest item of expenditure. Noteworthy was the fall in transfers to the State Public Employment Service to finance unemployment benefits, for a sum of 3.09 billion euros, thanks to the positive development of the job market. In contrast, transfers to regional governments have increase by 1.4%.

Spending on intermediate consumption also fell by 4.4%, as did accrued interest, by 5.9%, and the contribution to finance the European Union Budget, by 21.1%, due to the lower rate of budget execution posted in 2015.

Among the headings of current spending that increased, noteworthy is the heading of social benefits other than social transfers in kind, which rose by 4.8%, mainly as a result of increased spending on pensions for former public servants. The remuneration of salaried public workers also rose by 2.3%, following the repayment of 50% of the Christmas bonus deferred in December 2012, compared with the 25% repayment made in the same period of 2015, and due to the 1% salary increase in 2016.

Under the heading of capital expenditure, noteworthy is gross formation, with expenditure of 2.1 billion euros, 2.4% up on 2015, as a result of greater military investments under the plan to modernise the armed forces. Subsidies for investment and other capital transfers fell to 265 million euros, since an equity contribution to ADIF was made in 2015 that affected the comparison. Similarly, capital transfers fell from 2.05 billion euros in 2015 to 1.22 billion in 2016, since last year operations were carried out in 2015 without an equivalent this year, such as the transfers to the Institute for Energy Diversification and Savings (Spanish acronym: IDAE) of 334 million euros, to Red.es of 117 million and to the Centre for the Development of Industrial Technology (Spanish acronym: CDTI) of 300 million.

Joint deficit of Central Government, regional governments and Social Security system (May)

The joint deficit of the public authorities in the period from January to May, excluding local authorities, amounted to 24.62 billion euros, equivalent to 2.2% of GDP. Discounting the net balance of assistance for financial institutions, this figure stood at minus 1.39 billion euros at the end of May.

Central Government

Central Government posted a deficit of 22.37 billion euros at the end of May, equivalent to 1.99% of GDP, after excluding financial assistance. The Central Government balance includes the State balance, as well as the surplus of Central Government bodies:

• The State deficit to May stood at 23.52 billion euros, equivalent to 2.1% of GDP
• Central Government bodies posted a deficit of 234 million euros at the end of May.

Regional governments

Up to the end of May, the deficit of the regional governments fell by 24.8% to 4.03 billion euros. In GDP terms, the deficit ratio of the sub-sector stood at 0.36%, being below the 0.5% posted in the same period last year.

Social Security Funds

Social Security Funds posted a surplus of 1.78 billion euros, equivalent to 0.16% of GDP. Noteworthy in this sub-sector is the rise in revenue from social contributions, with growth of 3.2% to May, double the rate posted in the same period of 2015 when growth in contributions stood at 1.6%.

This situation is mainly down to the surplus posted by the State Public Employment Service of 1.12 billion euros, equivalent to 0.1% of GDP in the period of January to May, compared with 0.22% of GDP posted in the same period last year. This fall in the surplus is a result of the lower transfers received from the State to finance unemployment benefits, due to the favourable development of the job market.

The Social Security system posted a surplus of 796 million euros, equivalent to 0.07% of GDP, compared with 0.12% posted in May 2015. Finally, the Wage Guarantee Fund (Spanish acronym: FOGASA) posted a deficit of 135 million euros, compared with 105 million posted in May 2015.