Readers in Canada and the United States will note that the cabinet approved the 2023 budget plan this Tuesday. The proposal lifts total spending to 485.986 million euros for the coming year, a rise of 34.517 million from 2022. Consolidated expenditures climb by 7.6%, outpacing the anticipated economic growth for the year ahead. The ruling coalition, the last in this legislature, is steering toward an election cycle that begins in 2023. Pension outlays climb 11.4%, investment expands by 33%, and defense spending rises by 25.8% as part of the plan.
To fund these higher outlays, the government expects a 6% uptick in tax revenue, driven by new extraordinary taxes on banking, energy, and wealth. The strategy includes tax treaty agreements and a plan to capture surplus income inflation provides to public coffers. Stronger social contributions and job growth are also anticipated to channel more transfers and boost revenue through European funds. With higher expenses and revenue, the government projects a deficit for all administrations that would rise from 5% of GDP in 2022 to 3.9% in 2023.
Social spending is projected to grow substantially, by 10.5%, reaching 266,719 million and accounting for 58.5% of total planned expenditures. Finance officials describe this as the largest social expenditure in history, aimed at strengthening the welfare state. The figures were presented by Maria Jesus Montero at a press conference after the Council of Ministers meeting. Notably, retirement spending is set to rise 11.4% in line with updates to pension benefits, with and without supplements. Inflation trends call for careful price monitoring in the months ahead. The plan also earmarks 2,955 million for the Intergenerational Mechanism to reinforce the Social Security Reserve Fund in 2023, following an earlier drawdown from the retirement fund. The strategy includes widening equity measures and social contributions to meet future financial challenges of the system.
Within the social spending bloc, health expenditures are slated to rise 6.7 to support infrastructure, including 500 million for primary care and mental health, plus a 50 million boost to expand university offerings by 1,000 medical study places. An additional 620 million is allocated to fight addiction, among other measures.
Minister Montero summarized the accounts with phrases like prudent, responsible, socially just, and economically efficient. The dual aim of the budget is to guide Spanish society through uncertainty caused by the war in Ukraine and to confront the major challenges of modernizing the economy. After discussions between the two government partners, PSOE and UP, the search for parliamentary support begins so the new accounts can take effect on 1 January.
From the total 2023 consolidated state expenditure, 30.008 million is allocated to the state and its autonomous bodies, with European bailout funds playing a role in financing the plan.
Main measures
Defense is set for a notable 25.8% increase as the government honors commitments made by President Pedro Sánchez before NATO partners. Infrastructure spending grows by 6.7% in the overall investment section and is expected to rise by 33% through the Recovery, Transformation and Resilience Plan, with the plan extending into research, development and innovation, which already show a 22.8% increase in the budget. European funds also contribute to project financing.
Projected unemployment protection is trimmed by 5.3% to 21,278 million, reflecting a positive labor market outlook. Unemployment benefits are to rise in 2023 following an agreement between the government partners to reverse some adjustments introduced in previous administrations.
The budget also includes a 3.5% salary increase for public employees, an expansion of the minimum vital income, the continuation of public transport subsidies at the state level, a 102 million boost for the social thermal bonus, and the extension of the 250 euro housing subsidy for young renters.
Macroeconomic picture
Interest on public debt is projected to grow again after years of restraint, increasing by 3.6% to reach 31,275 million. The 2023 budget framework rests on a cautious macroeconomic outlook amid an energy crisis. While there are no signs of a sudden downturn, the government projects growth around 4.4% for the year. Inflation is expected to ease gradually, contributing to a 2.1% growth rate in 2023. Employment is forecast to rise modestly in full-time equivalent terms, by about 0.6%, with the unemployment rate predicted to fall from 12.8% in 2022 to around 12.2% in 2023. Public debt is anticipated to decline slightly as a share of GDP, moving from 118.3% in 2022 to 115.2% in 2023.