These refunds (around €5 billion in total) would have affected revenue from VAT and income tax, both individual and corporate. Had they been paid out in December, Spain's public deficit at the end of last year would have been around 7.2% of GDP. The target agreed with the European Commission was set at 6.3% of GDP.
El País notes that data from Spain's Agencia Tributaria (tax agency) show that tax refunds in January 2013 were 82.8% higher than in January 2012 (see the table on page 15). This seems to indicate that the Spanish government may have deliberately pushed back the refunds to send a lower 2012 deficit figure to Brussels.
The Spanish Treasury Ministry has denied the reports and given its own version. Basically, due to recent legislative changes, tax refund applications need to be looked through "with greater attention" - and stricter controls take longer. No accounting tricks are being used.
Both versions sound plausible. We would note, though, that even if the Spanish government did dodge including the refunds in last year's deficit, it will certainly have to factor them into this year's deficit. Not exactly a permanent fix, although we have seen very similar one-off measures used in Portugal to meet deficit targets (see, for instance, this post we wrote in November 2011).
With that in mind, we can't help but wonder whether the European Commission will want to know more details about this story, although Olli Rehn & co. seem to be more focused on structural deficit for now.
The "version" given by the Spanish Treasury Ministry changes nothing. If refunds were delayed, they were delayed. Whether the motive was virtuous means nothing.
ReplyDeleteIt is very unlikely that Spain had a full-year deficit as low as 6.5% simply because the actual half-year deficit in mid-2012 was quite a bit higher than 6.5% when annualised.
To go from over 6.5% annualised in mid-year to 6.5% for the full year implies some pretty impressive tightening in the second half of the year.
1.The whole Euro-zone is kept alive by Off Balance Sheet tricks. Basically the Bust South is kept alive with guarantees from the North that donot occur on the North's budget.
ReplyDelete2. With countries like Spain it is even much worse than that. Their banks in majority are under water. But as long as you donot account for losses (either write-off or via provisions) it can take decades to come to the surface. Basically first when the income/cash flow related to it dries up as the debtor is bust, which can take a long time (renew the loan (with one including original interest) and you donot see it.
So bankbusts always come to the surface at the other side of the BS when the bank's creditors stop lending.
3. Similar with the state. Basically it is accounting on a cash basis and short term.
That is the lethal combination cash flow longer term is nearly impossible to hide. But short term is very easy bring it to the next year and nothing happens. Pay your suppliers later, roughly similar.
4. Debtwise the country is kept alive by a combination of ECB measures and armtwisting. The auctions look a complete charade. Arm twisted eg pensionfunds buy at ridiculously low prices seen the risk the new issues and via via dump them with the ECB as collateral for again ridiculously high percentages seen the risk.
5. Anyway, back to 3. Late paying (or early collection the mirrorside) is only at best a medium term solution. Take this example it might work for 2012, but the 'best case' scenario for accounting-rules-dodgers) is a plus (2013 pay in 2014, similar to now) and a minus (the 2012 rubbish that now comes to the surface) for 2013. A one time possibility.
6. That is why a long term crisis is so dangerous. Half way the process you bump with your head against the wall of late paying, early collection, transfer to the next year. That is why deficits look to go flat iso dropping. First part is stated too rosy (because of all these tricks) but second part the earlier gains explode in your face. Not even to mention the skeletons that come peeping out of the closets (hidden liabilities like the Spanish regions and its banks).
What we have seen in Greece and since 1 or 2 years now in Spain. And start to happen in other places as well. The Dutch a month ago closed a 1 Bn gap via a dividend (seen as revenue) from the CB that was possible because of some guarantees that had no budgettary effect, but could mean a liability of 7 Bn if things related to Greece go bad.
7. Much of the CBs profit are constituted this way as well. In a nutshell: Buy Greek bonds under par. Assume they are held to maturity and revalue (make bookkeeping profit) to nominal. Just another trick and there are several more.
The european commission will not want to hear more of this. They want to see no evil, hear no evil; But the evil will not go away. Silly Monkeys.
ReplyDelete"Is Spain using accounting tricks to make its 2012 deficit look smaller?"
ReplyDeleteYes - classic Euro fiddle
Both editions sound possible. We would note, though, that even if the Language govt did avoid such as the reimbursements in last seasons deficit..
ReplyDelete