Spain Misses Watered-Down Budget Deficit Targets Yet Again


// Mish’s Global EconomicTrendAnalysis

When you are about to miss budget targets, the easy thing to do is lower the bar, again and again until you can hit them. Spain did just that, and still missed.

Via translation from Libre Mercaado, please consider SpainMissesBudgetDeficitTargetfor 2013.

Treasury announced a deficit of 5.44% of GDP in November, but official data elevate that number to 5.96%. Taking a December shortfall estimate into consideration, the deficit estimate is around 6.9% for 2013.

Economy Minister Luis de Guindos, chose his words are very careful in this regard. Guindos said yesterday that the 2013 deficit would "converge towards the target of 6.5%", through improved tax collection and lower cost of debt (interest payments).

The defict is not the only accounting chicanery. Tax data used to estimate GDP has little or nothing to do with reality.

Accurately stated, the deficit would be around 5.96% of GDP to November, instead of the 5.44% announced by the Treasury, which is a deviation of 0.52% of GDP.

Also remember that until last June, the general government deficit target for 2013 was 4.5% of GDP and not 6.5%. The Government of Mariano Rajoy managed to smooth the path of fiscal consolidation after pressing insistently to Brussels.

In any case, the final deficit figure will not be known, quite possibly until the end of 2014, after the successive and traditional budget and GDP revisions specific to the Spanish authorities, as usual.

For grins, let’s take a look at a progression of events in 2013.

March 12, 2013 – Mish: Spain’s Budget Deficit Grew by 35.4% in January to 1.2% of GDP; Spain’s Tax Revenue Drops 20% in Face of VAT Hikes


Spain’s budget deficit for the month of January was 0.89% not counting regional deficits. The target for the entire year is 3.8% of GDP. On that basis, Spain went through 23.42% of its annual budget in a single month.Spain’s deficit target including regions and transfer payment is 4.5% of GDP.The deficit including regions and transfer payments was 1.2% of GDP.On that basis, Spain blew 26.67 % of its budget in a single month.Territorial government revenues declined 29.1%Income Tax revenue (corporate + personal) fell 18.2%Social Security payments grew by 40.2%Overall transfer payments increased 23.3%
Odds of Success Zero Percent

Odds Spain hits its budget target of 4.5% in 2013 is precisely 0.00%.

In June, after begging Brussels for relief, the target was revised to 6.5% of GDP.

September 16, 2013 – New York Times: Spain’s economy minister, Luis de Guindos, said Spain on Track to Meet Budget.

"Spain is on track to meet the 2013 budget deficit target it agreed on with its European Union partners and should emerge from recession before the end of the year," the economy minister said on Monday.

After the financial crisis burst Spain’s construction bubble in 2008, "no doubt 2014 will be the first year when Spain will have some recovery," the minister said.

September 18, 2013 – Mish (commenting on the NYT article): Spain on Track to Meet Budget Targets Says Economy Minister; Data Strongly Suggests Otherwise

How many lies and distortions can one man present in a few short paragraphs?

If by some miracle Spain meets this year’s target, it is only because the target changed 4 times in the past two years.

Yet, I still have to ask: how likely is that?

December 5, 2013 – Mish: Spain Raids Social Security Reserve Fund to Meet Deficit Targets

Monetary magic of borrowing money from trust funds allegedly helps Spain come closer to meeting its budget deficit targets reports Eurointelligence.

If Spain meets it budget deficit target this year, it will likely do so by some sort of accounting gimmickry or purposeful under-reporting of regional debt.

Expect the same thing multiple times in 2014, because Spain will have to not only catch up with its 2013 revised deficit shortfalls, but also comply with new rules that likely take away some sleight of hand budget gimmickry.

By the way, it’s important to note that 97% of what’s left of the reserve fund is invested in Spanish government debt. Think that investment won’t ever take a haircut?

And so here we are, with yet another miss of a four times watered down budget deficit target.

Mike "Mish" Shedlock

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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