Cristobol Montoro is on track to spend too much and earn too little again this year as Spain fails to meet its EU-imposed deficit goals. When the national budget was reviewed in July, most economists agreed that meeting the goal will be nearly impossible. The Finance Ministry is counting on saving 5 billion euros when the risk premium drops as well as a boost in consumer confidence at the end of this year, both of which would increase tax revenues from the VAT.
But the Ministry should not count on either of these. Even though Spain is working its way out of a recession, we are not strong enough to take any tax revenues for granted. Further, last year the VAT was increased in September, which boosted revenues. That increase will not be applied this year. Corporate taxes fell by 30% after being pushed forward a quarter in 2012, which robbed tax revenues from the 2013 fiscal year.
Last year various spending cuts were employed to balance the budget, but these will not be executed this year. It seems like Montoro has thrown in the towel, resorting to continual tax hikes that undermine consumer strength and ultimately don't increase government revenues.
Spanish budget policies have slackened and it looks like we will fail to meet our budget goals for the year, which will hurt our image globally. Some reforms have been carried out (in the financial sector, for example), but many reform efforts are still pending. The difficulty of reducing the deficit is evident in the nation's lack of spending controls and the consequences of not finishing reforms to the tax system and public sector.