VZCZCXRO0396
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #2083/01 3111413
ZNR UUUUU ZZH
P 071413Z NOV 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 3767
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 MADRID 002083 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/WE, EB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: SP ECON EFIN PGOV
SUBJECT: SPAIN'S 2008 PROPOSED BUDGET COMBINES SPENDING 
INCREASES, FISCAL RESPONSIBILITY 
 
REF: A. MADRID 1942 
     ¶B. MADRID 1902 
 
 ¶1. Summary. With only four months left until general 
elections, the PSOE government has successfully side-stepped 
attempts led by conservative opposition Partido Popular (PP) 
representatives in the Chamber of Deputies to derail its 2008 
proposed budget.  The Administration's budget focuses heavily 
on social spending, infrastructure, and R&D investment.  In 
addition, it provides increases in its support to 
international development assistance and all ministries, 
while projecting a budget surplus for the fourth year 
running.  Following the Administration's well-publicized 
announcements of additional housing, health, and child 
benefits, the PP accused the governing party of developing an 
"electoral budget" while insufficiently funding the 
autonomous communities.  Additional criticisms have focused 
on the budget's now-overly-optimistic growth and revenue 
calculations.  Despite these criticisms, the budget seems 
headed for approval by the end of the year with only minor 
amendments likely.  End Summary. 
 
--------------- 
Budget Overview 
--------------- 
 
¶2. On September 25, the Administration unveiled its 2008 
budget to the parliament, proposing a spending increase of 
7.2 percent in nominal terms over the 2007 budget.  With 
projected spending of 289.9 billion euros and revenues of 
301.6 billion euros, this budget anticipates a surplus for 
the fourth year in a row.  Topping the list of priorities are 
increased spending in R&D and infrastructure (17.4 percent 
and 9.4 percent increases, respectively), education (14 
percent increase), housing (10 percent), pensions (7.2 
percent), and international development assistance (27 
percent). 
 
¶3. The bill also proposes a 51.1 billion euro contribution 
towards paying down the public debt.  Such a payment would 
lower the public debt to 34 percent of GDP, the lowest level 
in more than 20 years.  Of the total budget, roughly 
one-third is projected for social security, slightly over 
one-third will fund central government operations, and the 
remaining one-third will be split primarily between paying 
down the public debt and supporting the autonomous and local 
governments.  Of this last third, an amount of 12.4 billion 
is alloted for Spain's EU contribution.  The 
 
¶4. Among the high-profile spending proposals recently 
announced by President Zapatero and his cabinet are measures 
to give families 2,500 euros for each newborn child, measures 
to cap electricity rates, and measures to subsidize rental 
housing for young workers and provide free dental care for 
children ages 7-15.  Despite speculation that a slowing 
economy may not produce the tax revenue anticipated for 2008, 
the Administration has nonetheless maintained that the 
budget, with its surplus cushion, will be able to support 
these new spending initiatives. 
 
------------------------ 
Opposition to the Budget 
------------------------ 
 
¶5. During the October 25 Chamber of Deputies budget debate, 
six parties proposed a record-breaking six "amendments to the 
total," which if any one had passed, would have forced the 
Administration to reformulate the budget in its entirety. 
The PP, which opposed the budget, argued that the 
Administration's "election-oriented" budget was overly 
slanted towards currying votes and did not adequately invest 
in the autonomous communities.  The IU (United Left) argued 
that the proposed budget did not include sufficient social 
spending, and Catalan parties CiU and ERC argued that the 
budget failed to address their regional needs, particularly 
in the wake of this year's electricity and railroad problems 
in Barcelona. 
 
¶6. The PSOE managed to defeat all six of the "amendments to 
the total" by a slim margin (177 to 168, with 1 abstention 
and four absences).  The 13 votes in addition to the PSOE's 
164 came from the Basque region's National Basque PNV party 
(7 votes), the Galician BNG (2), the Aragonese CHA (1), the 
Canary Islands CC (1), and two PP members, one of whom voted 
with the government by mistake.  Catalan parties CiU and ERC 
ultimately sided against the government. 
 
¶7. Having avoided being sent back to the drawing board, the 
bill is now with the Chamber of Deputies' Budget committee, 
which is reviewing piecemeal amendment proposals.  The bill 
 
MADRID 00002083  002 OF 002 
 
 
is expected to be approved by the full Chamber on November 
15, after which it will go to the Senate.  Although the bill 
may be slightly amended in either house, it is expected to be 
approved before the end of the year and take effect January 
1, 2008. 
 
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Comment 
------- 
 
¶8. Given the generous nature of this year's ample budget, the 
PP has attempted to focus on universal sore points in Spain's 
politics, including funding for the autonomous communities. 
The government has also been criticized for its overly 
optimistic revenue estimates, particularly in the wake of 
Vice President Pedro Solbes' recent acknowledgement that the 
assumed 3.3 percent 2008 growth rate on which revenue 
forecasts were based will more likely be around 3 percent 
(which is still a few tenths above the estimates of the IMF 
and some banks).  Solbes has made assurances that the surplus 
cushion will more than amply cover any deterioration due to 
the reduced growth projection. 
 
¶9. Despite these criticisms, the government seems to be 
operating from a position of strength on fiscal matters. 
During the past four years, helped by rapid economic growth, 
it has managed to steadily increase social spending and 
investment while maintaining a budget surplus.  With growth 
expected to slow during 2008, whichever government prepares 
the following year's budget may have a more difficult task. 
 
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Appendix 
-------- 
 
¶10. Breakdown of proposed spending: 
 
Total budget: 349.4 billion euros 
 
¶I. Pensions and miscellaneous:  115.1 billion euros (7.7 
percent increase over 2007 budget) 
II. Autonomous Communities/Local government: 52.4 billion 
euros (7.9 percent increase) 
III. Debt Repayment: 51.1 billion euros (4.3 percent increase) 
 
IV. Ministry Funding: 104.6 billion euros 
 
-Ministry of Labor and Social Affairs: 26.2 billion euros 
(11.5 percent increase) 
-Ministry of Infrastructure and Public Works: 12.3 billion 
euros (4.5 percent increase) 
-Ministry of Defense: 9.7 billion euros (5.5 percent increase) 
-Ministry of Interior: 9.2 billion euros (9.2. percent 
increase) 
-Ministry of Agriculture: 9.1 billion euros (10.2 percent 
increase) 
-Ministry of Industry, Tourism, and Commerce: 8.4 billion (9 
percent increase) 
-Ministry of Science and Education: 6.6 billion euros (14.8 
increase) 
-Ministry of Economy and Finance: 5.2 billion euros (3 
percent increase) 
-Ministry of Environment: 4.2 billion euros (9 percent 
increase) 
-Ministry of Foreign Affairs and Cooperation: 3.4 billion 
euros (52 percent increase) 
-Ministry of Public Administration (2.5 billion euros (10 
percent increase) 
-Ministry of Justice: 1.5 billion euros (10 percent increase) 
-Ministry of Housing: 1.4 billion euros (9.7 percent increase) 
-Ministry of Health and Consumption: 893 million euros (14.4 
percent increase) 
-Ministry of Culture: 874 million euros (5.2 percent increase) 
-Other ministries: 2.9 billion (14 percent increase) 
 
¶V. Miscellaneous Funding: 26.2 billion euros (includes EU 
funding, parliament, royal housing expenses, etc.) 
 
 
 
 
AGUIRRE