27 September 2012. Spain's Council of Ministers has approved submitting the General State Budget Bill for 2013 to Parliament. It is an austere budget intensifying the restructuring of the Spanish economy, laying down sound foundations that will contribute to economic growth and job creation.
The State Budget for 2013—the second budget drafted by the Government this year—will also contribute to Spain's complying with the fiscal consolidation commitments it has made with Europe.
The austerity of next year's budget is reflected in the 7.3% drop in State expenditure, except for Social Security contributions, the payment of interests, and the financing system of the Regional Administrations, as well as in the 4.3% rise in revenue, at a time when a complicated economic scenario is predictable.
In order to attain fiscal consolidation the restriction in public expenditure in 2013 will have greater weight than the increase in revenue. Of the adjustment, 60% are cuts in expenditure, and 40% increase in revenue.
However, the budget for next year has maintained a series of priority policies, such as social expenditure, which accounts for 63.6% of consolidated expenditure.
The wages of public employees are to be frozen.
Expenditure on pensions is set to increase by 4.9% as compared with 2012, reaching a total of € 121.557 billion, including a 1% increase in all pensions. The State's contribution to funding non-contributory pensions aggregates € 6.662 billion.
Expenditure on the State's workforce has been cut by 3.9% as a result of freezing the salaries of public employees and the offer of public employment, except for sensitive sectors such as hospital staff, teachers, security forces, combating fraud, and firefighting, with a replacement rate of 10%. Researchers, and the promotion of internationalisation, will also have a 10% replacement rate.
Public employees will be guaranteed two extra monthly payments in 2013
Another priority for economic development, which has remained unchanged vis-à-vis 2012, is civil R&D, which maintains a budget of € 5.563 billion.
For 2013, subsidies to trade unions, political parties and business organisations will be cut once again. Specifically, those granted to trade unions, business organisations and other types of organisations will drop by 20%, which totals 40% when added to the drop in 2011. Subsidies to political parties fall by 42%.
Other priority expenditure policies that will contribute to Spain's fiscal consolidation are public safety and penitentiary institutions, which will be reduced by 5.4%, aggregating € 7.903 billion, and justice, which will be cut by 4.3%, totalling € 1.543 billion.
Ministry expenditure will drop by 8.9%
The commitment is to reduce the overall deficit of the Public Administrations, to 4.5% of GDP, as opposed to the 6.3% envisaged for the end of 2012. The Central Administration and the Social Security Administration will reduce their deficit to 3.8%; the Autonomous Communities will have to set their deficit at 0.7%, whereas Local Governments will finish 2013 with zero deficit.
The 2012 State Budget envisages reducing the overall expenditure of the Ministries by 8.9%, except for obligations from past tax years and contributions to the Public Employment Service, Social Security and the ESM, totalling € 39.722 billion.
The Ministry of Agriculture, Food and the Environment will undergo the greatest budget adjustment for 2013, with an expenditure cut of 25.4%. It is followed by the Ministry of Industry, Energy and Tourism, with a 21.3% cut, and the Ministry of Education, Culture and Sport, with a 17.2% cut.
Conversely, the expenditure of the Ministry of Health, Social Services and Equality will increase by 28.6%, and that of the Ministry of Employment and Social Security will rise 13.7%.
The total non-financial revenue for 2013, after transfers to Territorial Administrations, will reach € 124.044 million, i.e. a 4% increase as compared with the 2012 Budget.
Tax revenue before transfers to Territorial Administrations will reach € 175.177 million, 3.8% more than in the 2012 Budget. Revenue from Personal Income Tax will grow by 1.5%, totalling € 74.215 billion, whereas that generated by Corporation Tax will decrease by 2.8%, reaching € 19.012 billion.
Revenue from VAT will rise by 14.6 as a result of the measures launched by the Government, reaching € 54.657 billion, whereas revenue from special taxes will increase by 8.3%, totalling € 19.956 billion.
The Council of Ministers has approved, together with the General State Budget Bill for 2013, a Tax Measures Bill in order to consolidate public finances and boost economic activity.
Within this package of measures, in 2013 the Government will enable companies to carry out the monetary updating of the last balance sheet they have approved. The aim is to adapt accounting values to the evolution of inflation. Thus, companies will avoid inflationary pressure, while bringing accounting value and market value closer. The updating will be performed on a voluntary basis, will include both legal persons and individuals, and will be subject to a tax burden of 5% of the amount of the updating. It will comprise tangible fixed assets and financial leases.
The amount of the accounting revaluation will be taken to a specific account for revaluation reserve. Subsequently, this amount may be used to reduce accounting losses, to increase share capital, or for freely distributable reserves. Therefore, the measure will also enable the enhancement of companies' internal financing, by improving their access to capital and debt markets.
The updating coefficients will be established in the implementing regulations bearing in mind the purchase price and accumulated depreciations. Updating balance sheets is a measure that is performed with a certain regularity. The latest updates were approved in 1983 and 1996.
Moreover, and on a temporary basis for 2013 and 2014, the Treasury will limit the tax deductibility of depreciations of tangible fixed assets performed by large companies. This will be 70% of the maximum envisaged in the tables. This measure will come into effect in 2013 through payment in instalments. SMEs and micro-SMEs are excluded; they will be able to depreciate in the usual manner.
Short-term capital gains
The Bill also modifies the taxation system applicable to capital gains obtained in the short- term, with the aim of preventing speculative movements. Thus, gains deriving from the sale of assets held by the taxpayer for a year or less will be incorporated into the general tax base of Personal Income Tax. These gains will be taxable at the general rate, i.e. at the taxpayer's rate instead of at the rate of tax on savings, which has been the case to date.
Furthermore, the Treasury will establish a 20% tax on prizes won in lotteries and bets organized by the State Lottery and Betting Corporation (Sociedad Estatal Loterías y Apuestas del Estado) and by the Autonomous Communities, and in sweepstakes organised by the Red Cross and the Spanish National Organisation of the Blind (ONCE). This will be applied to prizes won as of 1 January 2013. Prizes totalling less than € 2,500 will be exempt from this tax. In addition, a once and for all withholding or payment on account is established, equal to the amount of said special tax.
Moreover, with regard to Wealth Tax, taxation on the wealth of individuals is extended to 1 January 2014. The Autonomous Communities may establish tax breaks with regard to this tax.
Housing and Property Tax (IBI)
With regard to real estate property, the deduction for investment in the taxpayer’s ordinary residence is eliminated for acquisitions made as of 1 January 2013. This measure, which was already announced by the President of the Government in the Congress of Deputies, responds to the recommendations made by the European Commission. The deduction for acquisitions prior to 2013 is maintained.
In addition, City Councils may choose to tax, through Property Tax (IBI), the historical and artistic heritage assigned to economic activities.