Train passengers in Palma.

Train passengers in Palma.

10-08-2020Pere Bota

The Government is planning budget cuts for 2021, to make up for the dramatic drop in revenue caused by the coronavirus pandemic, but the Departments of Health, Education and Social Services will not be affected, according to Finance Minister, Rosario Sanchez, who says Departments have been asked to tailor their accounts to the "slowdown" of economic activity.

"Everything indicates that the Balearic Islands will be one of the European regional economies most punished by the economic effects of Covid-19, which will affect families, companies and public administrations," she said.

Basic services

Councillors have also been told not to cut back on basic services in terms of income. Next year's accounts will focus on policies to "protect families and small businesses, revitalise the labour market, boost production diversification and transition to a modern, sustainable Civil Service."

The fundamental problem in drawing up the Budgets is the radical drop in income, particularly from the Ecotax and the property transfer tax for house sales. The tax is paid based on an estimate of tourist arrivals the year before, so if there are little or no tourists in 2020, there will be zero income from the Ecotax for 2021.

Madrid

The amount that the Central Government contributes to Budgets is linked to the collection of VAT and IRPF which might just save the 2021 budgets but things could get a lot worse in 2022.

"Due to these circumstances, the budget allocations must be in accordance with the guidelines for growth or limitation of expenditure that, throughout the preparation process, will be set by the Ministry of Finance," said Rosario Sanchez, who warned that the pending Financial System reforms are adding to the uncertainty, saying, "it will be up to the Government to initiate the financial deployment of the REB.

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