SPAIN’S POPULIST GENERAL STATE BUDGET
Spanish economic growth has been very positive throughout the last decade, at least unemployment hasn’t increased, and our ratio of public debt to GDP has stayed constant at 100% since 2014. Many libertarians as myself think that now in a time of economic boom or recovery is the perfect opportunity to cut taxes and along with them public expenditure. The Spanish government seems to not be thinking the same. Minister Montoro has presented a ridiculous expansionary General state budget. What it should be done will be to use this epoch of positive economic performance to reduce finally and once for all, the Spanish eternal deficit, which this time positions itself around 3% of GDP. The government is basing its socialist budget on the assumption that an economic growth rate of around 3.5% will generate extra fiscal revenue of 12,000 million. These assumptions are no more than fairy tales. There is no time for austerity, because austerity should be a permanent policy.
Firstly, citizens can’t be lied and told that the economy will work magnificently well when we lower taxes but maintain public expenditure constant or eve increase it, as the Spanish government has done in some areas of the public administration. This General state Budget has been agreed beforehand between the two parties which are at the government at the time, Partido Popular and Ciudadanos, which have agreed over several points to design a new budget that tends to be much more political than economical.
Public expenditure will be boosted unnecessarily in some areas, as the government has raised wages of public workers by 3%, while it has eliminated IRPF (income tax) for workers earning between 12,000 and 18,000 euros per year, while lowering also VAT over the cinema industry. Slashing taxes is always a matter of joy, and as I have previously said, tax decreases will always benefit the economy in one way or another, but reducing taxes or even eliminating them for 3.5 million citizens while increasing public expenditure affecting nearly the same volume of the population are not economics or fiscal policy…it is populism, pure socialist populism.
Many people ask me when they hear me criticize so harshly the new national budget why shouldn’t we have an expansionary budget. Firstly, because in my opinion eliminating our deficit should be the first function of the government before providing any other kinds of expenditure. The Spanish passive positions itself on 100% over GDP since 2014, while countries as Luxembourg or Ireland have reduced their debt by 50% or 60% in that same time period. How? Very simple, reducing taxes, cutting public expenditure, promoting greater FDI inflows and finally generating an outstanding economic growth of between 6-7% per year. This contraction of the national debt by following a real austerity policy will be the only way to prevent being rescued as Portugal and Greece were when bad times come back to Spain. We need a safety margin, but our financial seatbelt has already broken, and we will only be able to build it up again by large and stable economic growth through efficient foreign investment.
Normally people I’ve talked to seem really happy by an increase of pensions of around 4%, mainly by deviating funds from the central State down to the Social Security program, which we should remember has got already a debt hole of 20,000 million euros. The government has consistently been saying that this system is not sustainable and that pension’s dotation won’t be raised anymore, while now increases that expenditure with greater debt. Ridiculous.
What the government doesn’t want to assume is that their Welfare State is bankrupt and the system should be rethought severely, as for example by shifting the pension system from a public defined-contribution to a mixed or even capitalization system similar to Holland’s or Chile’s, as I already commented in previous articles in this site. What should be crystalline clear is that transferring funds to a debt blackhole is not even a short term solution… it is political propaganda. Once again, pure populism.
Thirdly I would like to explain in depth why this budget is solely new electoral populism. If we look at the main goals of this national budget, and quoting Cristobal Montoro, “This budget is designed for public workers and pensionists”. I don’t know if Mr. Montoro thinks we are stupid or what, but this phrase represents nonsense. If we look at poverty rates in Spain we’ll see that jubilees have a rate of risk of poverty situated near 10%, the second lowest one in Spain after fixed workers (in which all public workers are taken into account) , which have a rate of risk of poverty of just 5%, and no public worker will be taken into account in this 5%, as wages are fixed by the public administrations and not according to productivity, which discards the option of having salaries lower than the risk of poverty threshold, which is around 8,200 euros per person a year.
So, if the budget was really designed to help the needed or the poor; as has been claimed throughout all these years, the national budget will present greater expenditure for unemployed people or autonomous workers, which have a rate of poverty risk of 47% and 28% respectively. This is not a redistribution of wealth, this is not solidarity, this is just an electoral propaganda weapon used by the right wing of this country trying to gain the vote of the majority and living aside the minority, as pensionists represent 6.7 million people along with public workers which are 3.1 million, forming a total of 9.8 million people, which is nearly a 20% of the Spanish population. Mariano is basically buying votes!
Finally, the enormous fiscal pressure in Spain is constantly falling over the citizenship and displacing hundreds of millions from private hands, which could use this money in an efficient and productive way. Politicians are constantly extracting valuable resources from the population and wasting them with electoral ends. They have created their own system to perpetuate themselves in power. It is a complete Ponzi scheme which should be broken down by a further liberalization of the economy through several reductions in taxes. The time for bureaucrats has ended, now is time for liberty.