Spain’s gap with the EU-27 in relation to public spending has been reduced from 4 points of GDP in 2015 -44% compared to 48.1%– to slightly less than one point in 2021 -50.6% compared to 51.5% of GDP–, according to calculations by the Foundation for Applied Economics Studies (Fedea)
“Spain has always had public spending below the EU-27 average, but that distance has been narrowing in recent years,” say the authors Manuel Díaz and Carmen Marín in a document that analyzes the evolution of public spending in Spain during the period 2015-2021 compared to the EU-27.
However, this convergence has been partly due to a worse performance of GDP, given that spending growth was similar, as explained in the report. In 2020, Spain was the EU country that experienced the largest drop in GDP, with GDP in 2021 still below the value prior to the pandemic (year 2019).
In a complicated economic context such as the current one, with sharp rises in prices and interest rates, which are affecting both the increase in pensions as well as public salaries and the rest of the costs of providing public services, the Foundation believes that Good management and control of public spending should be encouraged more than ever to improve efficiency.
On the other hand, they consider that it is necessary to adapt the pension system to the new demographic reality. “Although, we do not believe that only measures on the spending side are enough to reduce the public deficit and debt to sustainable levels,” they have pointed out.
Although Spain has practically converged with the EU in public spending, the authors conclude that it still has a significant structural public deficit that must be reduced as soon as possible, working both on the spending side, to improve efficiency, and on the income, through a tax reform that translates into a structural increase in collection.
Between 2021 and 2019, public spending in Spain grew by 8.3 points of GDP, which is divided between 6.9 points of increase in spending considering constant GDP and 1.4 points of the effect of GDP, while the EU increased public spending by 4.9 points of GDP, which is divided into 6.5 points of GDP of increased spending and -1.6 points of GDP effect.
“Therefore, this convergence has been produced in part by a worse performance of GDP between 2021 and 2019,” the authors of this study point out.
In addition, experts point out that public spending related to the welfare state (pensions, health, education, unemployment and other social protection) accounts for 65% of the total, with only 25% dedicated to pensions.
More spending on pensions but no improvement in well-being
The increase in spending on the welfare state in Spain between 2015 and 2021 is explained, above all, by the increase in spending on pensions, which places the country above the European average for the first time since 2019. However, this higher spending does not necessarily imply an improvement in the welfare state, since in Spain, health spending continues to be below the European average despite the increase experienced in 2020.
On the other hand, the trend in spending on education has been upward since 2020, and in 2021, we find spending similar to the European average (4.6% compared to 4.8%). The rest of social protection is the item furthest from the European average, particularly in aid to the family, social exclusion and housing.
Fedea recalls that in 2021 Spain was among the countries with the highest level of public debt (118%) after being one of the countries with the highest increase during the 2015-2021 period.
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