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The Government today approves an increase in the spending ceiling for 2019 and will review the macroeconomic

Sanchez's executive faces tough parliamentary negotiation to pass new public deficit targets

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The Government today approves an increase in the spending ceiling for 2019 and will review the macroeconomic

The Council of Ministers expects to approve this Friday expenditure ceiling for 2019, process with which begins elaboration of general budgets of State of next year. Toger with Minister of Finance, María Jesús Montero, owner of economy, Nadia Calviño, will also appear to report on updating of macroeconomic table, economic assumptions on which public accounts are built.

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Montero has advanced an increase in spending ceiling for next year. Approved by previous PP government for 2018 amounted to 119,834,000,000 euros, 1% more than previous year and was first increase after three years followed by setbacks. The non-financial spending limit, as is officially known to expenditure ceiling, is expected to increase by 4% to 8%, taking into account additional revenues provided by economic cycle and those reporting tax increases announced by executive . We may have claimed an increase in spending of higher ministries of up to 15 billion.

New deficit-lowering calendar

The deficit and public debt targets for period 2019-2021 will be approved next to spending ceiling. Calviño already advanced that will review path of fiscal consolidation for next few years. The new timetable for deficit reduction sets a target of 1.8% of GDP for 2019, five-tenths more than agreed with Brussels so far. For 2020, new target rises to 1.1% versus 0.5% committed so far. And in 2021, red numbers to be allowed by Government will amount to 0.4% of GDP. The previous executive had scheduled a surplus of 0.1%. The new path will allow government to postpone an adjustment of 6 billion this year and make a more gradual effort during following exercises.

The Government will also review economic prospects. Current calculations place GDP growth at 2.7% this year and 2.4% next. The executive could review a tenth of growth of this year's activity, up to 2.8%, in line with IMF and European Commission forecasts. It will also rebalance composition of growth with less input from outside sector and more from domestic consumption. The reduction of weight of external sector is a consequence of increase of uncertainty on world trade by tariff war unleashed by Donald Trump. For ir part, more household consumption is expected after increase in salaries of officials, pensions and tax repayment included in this year's budgets approved a couple of weeks ago.

Problems in process

The Government should exercise its negotiating attitude to adopt new objectives of budgetary stability. Although spending ceiling is not voted, Congress and Senate must validate deficit and public debt targets and ir distribution among different public administrations. The first ballot will take place on July 24th in Congress and will be passed to Senate, where it is voted, predictably, a week later.

The government can be found with several obstacles during parliamentary process. First of all, you will have to get support of most of Congress. We can oppose lower house by seeing that government ignores its request to raise spending ceiling furr and furr soften deficit-reduction schedule.

In Senate, he expects a PP that controls camera and will not let one pass after motion of censure. In addition, PP-ruled communities voted on Thursday against new deficit targets that allowed m to spend more. This stance provides a clue to attitude of PP in parliamentary process.

Blockade in Senate

Government sources say that if y fail to get ahead of new deficit targets y will draw up budgets with current objectives.  So possible rejection of accounts will not prevent government of Pedro Sánchez from present before 30 September draft general budgets of state for 2019.

However, parliamentary rejection of new budgetary objectives would be viewed with suspicion from European Commission, as it would force more acute adjustments next year, when regional, municipal and European elections coincide. The executive would be exposed for his political weakness by having only 84 deputies from 350 seats in chamber.

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