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Increase public spending, Spain’s strategy to overcome the crisis Increase public spending, Spain’s strategy to overcome the crisis

Increase public spending, Spain’s strategy to overcome the crisis

Public spending rises 19.7% compared to last year’s budget
EconomiaEspanyaEuropaGeneralZPortada Izquierda 15 November, 2020 user6 0
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Inici » Historic » Increase public spending, Spain’s strategy to overcome the crisis

Covid 19 has done much damage to many sectors of society, the economy is one of the most affected, especially in Europe. Until this started, the Spanish Government has sought a way to activate the economy by increasing public spending. They presented in October of this year their project of the General Budget of the State for 2021. The expense calculated in the document amounts to 550 billion euros, with 26.6 billion of this money expected to come from European funds. With this budget, they pretend to increase public spending by 19,4% regarding the previous year.

Extra data about how the government will distribute the social spending

Extra data about how the government will distribute the social spending Source: eleconomista.es

 

The Spanish Government’s proposition of the General Budget is focused on social security and unemployment benefits. Inside the social spending, the budget items increase in pensions, social infrastructures and education. All of the ministries receive more money than last year, those who receive the most are health, employment and industry. The budget of the Ministry of Health rises up to 7% of the GDP. The members of the executive said that this sanitary crisis has shown us that invest in Health is something fundamental. 

Economic measures

In addition to promoting national budgets that raise social spending and boost the economy of the state. The Spanish government already introduced new economic measures in March and July. The main measures promoted were the ERTES and the appearance of legislation regulating teleworking. These measures and others seek to protect citizens from losing their jobs and facing the situation at a time when the economy is weak and companies are flexible in laying off workers to lower business spending.

The government intends to raise taxes to pay all the public aid that has been applied since the pandemic began. The taxes that they want to raise are those that affect the wealthier people, big enterprises and the estate tax. The personal income tax will grow 2% for people who earn more than 300,000 euros a year. With these fiscal measures and focusing on prosecuting tax fraud is how the government intends to increase the revenue needed.

Spain’s spending compared to other European countries 

The other European countries are also affronting the crisis, although the majority is overcoming this situation more easily than us. The countries of northern Europe managed to recover the level of consumption at the beginning of summer. This situation widens the differences between north and south within the European Union. Because the southern countries Spain, Italy and Greece don’t have the same capacity to recover, its public debt exceeds 100% of GDP so its capacity to react is less flexible.

Spain is not overcoming this situation as other European countries are doing because their economic collapse was deeper. In Germany, the collapse was 11.7% of GDP. In Spain was 22% compared to last year. Germany is not the exception, countries like the Czech Republic or the Netherlands have faced shallower economic downturns. In the case of the Netherlands retail sales grew 7% over the previous year. Although this information does not take into account the second wave, because it’s data from the beginning of autumn.

Annual forecast of GDP growth of Spain  Source: Investopedia

 

Spain is the exception when it comes to fiscal policy. In the EU, Spain is the only one with the strategy of raising taxes in response to pandemic and lockdown. European countries have introduced tax cuts, especially VAT and personal income tax. Netherlands and Portugal lower the personal income tax. France decides to defer the paying of various taxes and use 100.000 million euros to support the citizens and companies. Greece even stops paying VAT until the crisis passes. Even so, most European countries agree with Spain when it comes to proposing their general budgets. Most of them add a rise in public spending to their budgets.

Alejandro Bordoy

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