The Budget Plan is sent to Brussels days after the Government sent the Draft General State Budget for 2022 to the Lower House of Parliament, which initiates its parliamentary processing, which will continue throughout the remainder of the year so that it can enter into force on 1 January. The document sent to the Commission therefore sets out the revenue and expenditure measures contained in the GSB. It also includes information on the country's economic development, forecasts and budget execution data for 2021.
The report explains to EU partners that the public accounts for next year focus on supporting a fair recovery from the pandemic, transforming the production model and building a more sustainable and resilient, greener, more digital development with greater social and territorial cohesion.
The document also reflects the Government's commitment to budgetary stability and envisages a reduction in public deficit and debt, the ratios of which will fall as a result of economic growth.
Revenue forecast
The 2022 Budget Plan states that total Public Administration revenues will account for 39.8% of GDP. In terms of volume, revenues will amount to 522.264 billion euros - growth of 4.6%.
To the extent that the growth of the economy will outpace revenue collection, the ratio of revenue to GDP is reduced compared to 2021, when it will stand at 41.3%.
Tax revenues will reach 298.801 billion euros in national accounting terms, according to the forecasts in the 2022 Budget Plan, an increase of 4.9% compared to 2021. This improvement is explained by the expansion of tax bases, as well as by the impact of the regulatory measures approved in 2020 and 2021 and which will extend their effect in different ways to 2022.
Taxes on income and wealth show lower growth rates than tax revenue on production and imports. This is because the Government's income support policies adopted during the pandemic to mitigate the consequences of the crisis have provided greater stability to the results of revenue and wealth taxes.
Thus, it is estimated that income and wealth revenues will amount to 145.723 billion euros in 2022 in national accounting terms, compared to 141.054 billion euros in 2021, an increase of 3.3%. Personal income tax collection will be boosted both by the evolution of the bases and by the effect of the rates on higher incomes approved in the 2021 GSB.
The expected improvement in corporation tax revenue is due to the expected growth in corporate profits, lower refunds and the positive effect of the limitation of dual taxation exemptions on dividends and capital gains introduced in the 2021 GSB.
Taxes on production and imports will grow at higher rates, due to the estimated positive evolution of domestic private consumption, as well as the effect of new tax measures such as the Financial Transaction Tax, the new tax on digital services and the new tax on plastics. And it is also the good development of domestic demand that justifies the higher expected VAT yield.
Also on the side of revenues, the improvement in employment will mean that the share of social security contributions in GDP will stand at 13.2% in 2022, similar to the 12.9% in 2019, before the outbreak of the pandemic.
As for other current revenues, an increase of 1.8% is forecast, implying a gradual recovery from 2019 levels, thanks to improved dividend and interest revenues.
Tax measures taken against Covid
The Budget Plan has also accounted for 600 million euros of the impact of the tax measures adopted in 2021 to combat the pandemic, including the reduction of VAT on surgical masks from 21% to 4%; the application of 0% VAT on imports of health goods to combat COVID-19; the tax measures adopted to support the self-employed; and the option to apply the direct estimate to fractioned payments in Companies.
To this must be added other measures taken throughout 2021 to reduce electricity bills, the revenue impact of which was estimated at two billion euros.
Tax changes for 2022
The 2022 Budget Plan sent to Brussels this Friday also includes the new tax measures included in the Draft Budget approved by the Council of Ministers on 7 October and sent to the Lower House of Parliament on 13 October.
In personal income tax, firstly, the Budget contemplates the reduction of the general reduction limit applicable to the taxable base for contributions to pension plans from 2,000 to 1,500 euros.
Secondly, it includes an increase in the reduction limit for contributions to pension plans from 8,000 to 8,500 euros, not only through employer contributions, as is already the case, but also through employee contributions to the same social security instrument, provided that these contributions are equal to or less than the respective employer contribution. This has two objectives: to improve the progressivity of the tax and promote effort sharing between workers and companies, and to promote occupational pension plans, the "second pillar" of the pension model according to the agreement of the Toledo Pact.
These measures will lead to a revenue increase of 77 million euros, the effects of which will be seen from the second quarter of 2023, when the filing of personal income tax returns for 2022 begins.
In corporation tax, a minimum rate of 15% is established on the taxable base of consolidated groups or companies with a turnover of 20 million euros or more, which means that small and medium-sized companies will not be affected.
For newly created companies, the minimum rate will be 10%, while for credit institutions and hydrocarbon exploitation companies the minimum tax rate will be 18%.
Corporation tax also includes a reduction in the rate of relief for income derived from the rental of dwellings, from 85% to 40%, so that the minimum rate of 15% is also applicable to companies engaged in this business.
The Treasury estimates an increase in tax revenue of 421 million euros due to the changes introduced in the 2022 GSB.
The Budget Plan also includes the Government's intention to carry out an in-depth reform of the Spanish tax system in order to favour growth, job creation and improved competitiveness. To this end, the committee of experts for tax reform was set up in April last year with a twofold objective: to analyse the tax system and to propose the reforms that should be made. The committee will publish its conclusions in February 2022. In any case, they will have to comply with the fundamental principles set out by the Government: tax consolidation, legal certainty, simplification and modernisation of the system, strengthening taxation in under-taxed areas, and they will also have to be appropriate in terms of the time at which each modification comes into force so as not to slow down the recovery of the economy.
Provision for expenditure
On expenditure, the Budget Plan forecasts its weight on GDP to fall to 44.7% in 2022 from 49.6% in 2021 and 52.4% in 2020 due to the sharp downturn in the economy caused by the pandemic and the Government's measures to support families and businesses to mitigate the consequences of the recession.
In terms of public expenditure by function, education will account for 9.2% of the total, compared to the 9% expected in 2021. This is due to a budget of more than five billion euros for education policy in 2022, an unprecedented figure, as is the budget for scholarships, which will be close to 2.2 billion euros.
Health spending will also increase its weight in total state spending, accounting for 14.6% of the total in 2022, compared to 14.4% in 2021. The weight of health spending in terms of GDP will be 6.6% next year.
The Budget Plan also includes the 2% revaluation of public employees' salaries foreseen in the GSB for 2022, as well as the replacement rate, which ranges between 110% and 125% depending on the groups.
Intermediate consumption will decrease slightly in 2022, due to the reduced need for spending on health procurement and services related to the fight against the pandemic. Thus, next year this heading will be at similar levels to those of 2019: 5.2% of GDP.
Social transfers, according to the Budget Plan, will close 2022 with a weight of 19.9% of GDP, still more than one percentage point above 2019, but down from 23.4% in 2020, as a consequence of the measures adopted due to the pandemic and the economic downturn that year.
Monetary benefits, which include pensions and unemployment, will rise by 0.6% next year, due to the increase in contributory pensions in line with CPI so that recipients maintain their purchasing power and the 3% increase in minimum pensions, non-contributory pensions and the Minimum Basic Income. In addition, the extension of ERTE and termination benefits in January and February 2022 is also envisaged here.
Spending on subsidies, after falling by 13.3% in 2021, will fall a further 24.1% in 2022 due to the recovery of the labour market and the reduction of people covered by ERTEs and extraordinary terminations of activity in the case of the self-employed, as exemptions from contributions are counted as spending on subsidies. As a result, its share of GDP will return to pre-pandemic levels: 1.1% of GDP.
At the height of the pandemic, 3.4 million workers in Spain were covered by an ERTE, a figure that has now fallen below 250,000. This explains the reduction in the subsidy item.
Interest expenditure by Public Administrations as a whole will continue to fall to 2.0% of GDP in 2022, from 2.3% of GDP in 2019. This is due both to the reduction in debt financing costs and the reduction in the State's financial needs due to the fall in the deficit that is expected in the coming years.
Deficit and debt reduction
The document sent to Brussels reflects the Government's commitment to budgetary stability, despite the continued suspension of tax rules in Spain, in line with the European Commission's decision to keep the safeguard clause active in order to give States room to continue with their policies to support the economy until the recovery takes hold.
The Government's commitment to tax balance is reflected in the indicative deficit reference rates reiterated in the Budget Plan, which outline a downwards path from the level reached in 2020 as a result of the fall in GDP and the increase in spending associated with the extraordinary measures put in place to combat the socio-economic effects of the pandemic.
Thus, from an 11% deficit in 2020, it is expected to fall to 8.4% in 2021, and to 5% in 2022. This represents a halving of this rate in two years. The reduction will continue in 2023 and 2024, when it will fall to 4% and 3.2%, respectively.
The Central Administration will bear the largest share of the deficit. For example, in 2022, of the 5 points, it will account for 3.9 points. This is because the Central Government has decided to support the rest of the sub-sectors so that they do not have liquidity problems: the Regional Governments, with extraordinary transfers so that they can provide the basic services of the Welfare State with excellent quality, as well as the Local Entities; and the Social Security, to assume improper expenses and guarantee the public pension system.
After contributions, State contributions are the item with the greatest weight in the Social Security's non-financial budget. In 2022, these contributions will reach 36.276 billion euros, 16.4% more than in 2021. Of particular note are the transfers to the Social Security in compliance with the first recommendation of the Toledo Pact in 2020, amounting to 18.396 billion euros - 4.467 billion euros more than in 2021 - in order to guarantee the sustainability of the system in the medium and long term.
Financial support to the Regional Governments will also continue, with an extraordinary transfer of 7.004 billion euros, which includes compensation for the impact of the SII VAT on the settlement of the 2017 regional financing system and the neutralisation of the effects of possible negative settlements in 2020.
The improvement in public deficit will also be reflected in the debt data, with the debt ratio falling next year from 119.5% to 115.1%.
Recovery Plan
The 2022 State Expenditure Budget includes the injection of 27.633 billion euros from the European Union's Recovery and Resilience Mechanism. These resources will be used to lay the foundations for more sustainable, lasting, balanced and socially just growth. The transformative nature of the plan is reflected in the items that feed the EU resources: the Ministry of Transport, Mobility and Urban Agenda has a budget of 5.874 billion euros; the Ministry of Industry, Trade and Tourism has 4.876 billion euros; and the Ministry of Ecological Transition and Demographic Challenge has 4.378 billion euros.
Sectorally, the key destinations of European funds are industrial policy (3.184 billion euros); housing rehabilitation (2.839 billion euros; sustainable mobility shock plan (2.184 billion euros); and boosting SMEs (2.140 billion euros).
Co-governance dominates the management of European funds. This is reflected in the figures sent to Brussels. Specifically, transfers to the Regional Governments are expected to amount to 8.712 billion euros, 30.7% more than last year; while Local Entities will receive transfers of 2.050 billion euros, 57.9% more than in 2021.
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