Five countries of the Eurozone - Belgium, Spain, France, Italy and Portugal - have justified their economic and budgetary decisions in written responses to letters from the European Commission requesting clarifications ahead of the definitive adoption of their draft budgets for 2018 (see EUROPE 11893).
Italy. The European Commission puts at 0.2% of Italian GDP the structural budgetary effort (not including cyclical effects) of the Italian authorities for 2018, which is below the figure of 0.3% of GDP presented in the draft Italian Finance bill, and considerably below the 0.6% of GDP in annual structural efforts set out for the countries under the preventative bank of the Stability and Growth Pact. At the same time, the Commission expresses concerns at an increase in net primary public spending and the risk of deviation.
In his response, the Italian finance minister, Pier Carlo Padoan, states that the national government deficit will fall from 2.1% of GDP in 2017 to 1.6% of GDP in 2018. He puts structural effort at 0.3% of GDP, in line with commitments taken previously. The gap of 0.1% between the Commission's estimates and those of the Italian authorities is the result of different economic assessments, such as the production gap, according to Rome.
France. The Commission notified France of its concerns regarding the sustainable correction of the excessive government deficit. In early October, the French Constitutional Council overturned the 3% tax on dividends. The European institution is also concerned at a nominal government deficit forecast at 2.9% of GDP in 2017 (or 0.1% more than recommended by its services) and a structural effort marginally greater than 0% of GDP in 2018, or well below the target of 0.6% of GDP under the rules of the Pact. The increase in net primary public spending is another cause for concern.
In his response, the French finance minister, Bruno Le Maire, announced the launch of an exceptional contribution on corporate tax to partially offset the overturn of the tax on dividends and bring government deficit below 3% of GDP in 2017, to stand at 2.9%. Furthermore, he told the French National Assembly the day before that the deficit would stand at 2.8% of GDP in 2018, or 0.2% more than anticipated in mid-October. According to Le Maire, France's structural effort for 2018 will actually be 0.1% of GDP, rather than marginal as the Commission argues. Finally, the increase in public spending would in any case not be incompatible with the rules of the pact.
Spain. The Commission called on Spanish authorities to submit a definitive draft finance bill, as the one sent in for 2018 assumes a continued status quo. The institution also highlights a government deficit of 2.3% of GDP in 2018, or 0.1% more than the agreed target, and a risk that the structural effort of 0.5% of GDP will doubtless not be realised.
Luis de Guindos, the Spanish Minister for the economy, stressed that due to the Catalan political crisis, the country's provisional budgetary plan is not at this stage assuming a change in policy. This situation is expected to reduce the Spanish deficit to 3.1% of GDP in 2017 and 2.3% of GDP in 2018. De Guindos pledged that the Spanish government's commitments would be respected under the Pact; hence, measures would be taken when the new draft 2018 law bill is presented, to meet the target agreed upon at European level of a government deficit of 2.2% of GDP next year.
Portugal. As regards Portugal, the Commission has concerns that the structural budgetary effort for next year will stand at just 0.4% of GDP, contrary to the 0.5% of GDP quoted by the Portuguese authorities and the target of 0.6% of GDP under the rules of the pact. The institution also anticipates an increase in net primary public spending.
In his response, the Portuguese Finance Minister, Mário Centeno, reiterates Portugal's commitment to budgetary consolidation. He then explained away the differences in assessment of the structural deficit between the Commission and the Portuguese authorities, on the grounds of using a different matrix. He stresses his determination to achieve the agreed budgetary targets, but notes that the draft finance bill for 2018 will entail a significant reduction in net primary public expenditure.
Belgium. The Commission expresses concerns at a structural effort of 0.3% of GDP in 2018 on the part of Belgium, rather than 0.6% of GDP as set out in the pact, but also at an increase in net primary public spending, flagging up a risk of deviation for 2018. The institution also requests information regarding the structural efforts of each local government and the planned reform of corporate taxation.
In his response, Johan Van Overtveldt, the Belgian finance minister, states that Belgium has adopted a budgetary consolidation policy in the last several years. The planned corporate tax reform is expected to have positive economic effects that were left out of the draft submitted to the Commission in mid-October. As regards the increase in net primary public spending, he explains that this is related to investment projects, following several years of cuts to state spending.
The letters of the five countries are available at: http://bit.ly/2hgBgDb. (Original version in French by Lucas Tripoteau)