Income, anti-inflation measures, and the 2022 public deficit in Spain: a fiscal snapshot

Public administrations closed 2022 with a figure around 63,776 million euros, representing 4.8% of GDP, a sharp drop from the previous years. The Ministry of Finance released this second decline after a 6.9% drop in 2021 and a 10.1% fall in 2020 when the covid crisis hit. The 2022 public deficit, as presented by Minister of Finance Maria Jesus Montero, exceeded the government’s 5% target by two tenths. She stated that year-end data show Spain as a reliable and responsible nation that keeps the Welfare State intact while pursuing stability goals.

National resources, measured by overall income, rose by 8.1%, which outpaced employment growth. Public spending advanced by 3.8%, and this combination helped reduce the deficit to 4.8% of GDP in 2022, lowering the absolute deficit to 63,776 million euros, a 23% decrease from 82,946 million in 2021. Montero emphasized that Spain appears as a trustworthy country in the eyes of the European Union and the broader international community, countering claims that previous governments failed to meet commitments.

Income

Inflation contributed to a broader resources expansion that supported the economy. Tax revenues climbed, with a 14.4% increase in tax collection amounting to 32,078 million more than the prior year in the tax agency. Social contributions also rose by 5.1%, further aiding the consolidation of public accounts in 2022.

In breakdown terms, personal income tax receipts grew by 15.8%, corporate tax by 20.8%, value-added tax by 13.9%, and special consumption taxes by 2.5%. These results helped attribute the stronger tax intake in 2022 to economic and employment growth, while inflation contributed only a portion of the gain.

Market performance and higher employment underpinned the revenue surge, and the inflation impact on final collections was assessed as about one-third.

anti-inflation measures

Montero responded to criticism from opposition parties that accused the government of padding revenue through inflation. She explained that roughly a third of the elevated revenue can be linked to inflation effects, with the remaining amount tied to real economic activity. She noted that the extra revenue was reinvested to cushion households and businesses from rising energy costs and inflation caused by the Ukraine crisis.

The minister highlighted that 22,217 million in aid, including tax relief totaling around 8,000 million and various spending measures, supported relief efforts. Specific allocations included a fuel discount of 5,752 million, rail transport transfers of 571 million, and household assistance totaling 6,216 million.

For 2023, Montero outlined plans to expand anti-inflation measures after June or introduce new steps depending on how price pressures evolve. She confirmed that the 2023 public accounts contain adequate budget margins that could be used to broaden measures if necessary. If inflation cools, the remaining margin would be employed to keep the public deficit below the 3.9% GDP target for the year.

Autonomy is getting worse

When looking at different levels of public administration, most deficit reductions occurred within the central administration. Its deficit shrank from 6.1% of GDP in 2021 to 3.1% in 2022. Social Security’s shortfall also narrowed, moving from 1% to 0.5% of GDP. In contrast, autonomous communities ended 2022 with a worsening balance, closing 2021 with a 0.1% deficit but finishing 2022 at 1.1% of GDP, exceeding the targeted 0.8%. Local governments also moved from a small surplus in 2021 to a deficit in 2022.

Overall, the central administration contributed 3.1 percentage points to the total deficit of 4.8% in 2022, with autonomous communities adding 1.1 points and Social Security contributing another point. Local governments, for their part, added around one tenth to the overall deficit.

return to discipline

Two years after the pandemic began, the public accounts have not yet closed the gap created by aid to households and companies, so the deficit remains above the 3% of GDP level seen in 2019. Projections suggest that meeting the 3.9% target for 2023 and 3.3% for 2024 may still be challenging, though plans include a return to the 2.9% target in 2025. The European Commission’s rule-based escape clause, activated in 2020 to support pandemic response, remains a reference for 2024. The government intention is to keep discipline while using available margins to support growth and resilience across the economy.

Cited sources: Ministry of Finance, state budget documents, and official fiscal statements.