. Tax reform was one of the cornerstones of this plan and parliamentary approval came a few days ago. And with that requirement met, Brussels has validated the Spanish spending path for the next seven years, that is, with an extension of three additional years over the four established by the general rule, as announced by the European Executive itself this Tuesday. However, this is only the beginning of the path because, as the Vice President of the Commission and next Commissioner for Economy and Finance, Valdis Dombrovskis, recalls, “Spain faces fiscal sustainability challenges due to its high debt-to-GDP ratio.” and the current budget deficit.”
. It specifies that, before the end of next year, the Government must have managed to increase public revenue by an amount equivalent to two tenths of GDP. That is, a figure that is more or less equivalent to the part of the tax reform that the Congress of Deputies did not approve last week, the diesel tax that was knocked down with the Podemos vote. The measure is also linked to the recovery plan, something that the new fiscal rules allowed in the first edition of the fiscal consolidation plans, those presented now.
To comply with the adjustment path, in essence, the Spanish governments of the next seven years will have to comply with a spending ceiling that requires an average increase, each year, of 3% of net public spending (without interest and extraordinary components). between 2025 and 2031. Spain has achieved this limit, largely due to the good performance of the economy, since Brussels’ initial intention was to demand 2.8%. Sources from the Ministry of Economy explain that the data of recent months, with upward revisions of the GDP of past years and improvement of future forecasts, have helped the adjustment to be smaller, since the evolution of activity and potential growth influence much in the Commission’s calculations to set spending paths.
In reality, the adjustment will be gradual, because in the first year, the agreed increase in spending is 3.5% of GDP. Afterwards, that margin will be reduced until it is 2.4%. The deficit must also decrease each year. The main objective is to reduce the public debt accumulated after more than a decade in which three systemic crises have been linked (financial, pandemic and inflation/invasion of Ukraine) and which, in the case of Spain, have increased the public debt by up 102% this year. The objective is that in 2031, the year in which the fiscal plan ends, the liability has fallen to 90.6% and, a decade later, maintaining the inertia achieved, it will reach 76.4%.
For all these numbers to be met, “a key issue will be implementation,” Dombrovskis has repeated again and again in a meeting with journalists from several European media, including EL PAÍS. And, in fact, he recalled, responding to a question about Italy, that “the new fiscal rules have improved the tools for monitoring compliance” with fiscal commitments. “We will follow the implementation very closely,” insisted the Latvian, who will be, precisely, in charge of this department during the new legislature.
The concept of the new fiscal rules is similar to that of the recovery plan: the States commit to making reforms and investments and, in exchange, the countries forced to make adjustments (those that exceed 60% of their GDP in public debt and the 3% deficit) may have more time to do so. The general rule is that these programs in which a spending ceiling is set is four years, but if these commitments are assumed, it can be up to seven. That has been the case of Spain and also those of France, Italy, Finland and Romania. “This has significantly reduced its fiscal effort, by an average of half a point of GDP,” quantified the Commissioner for Economy, Paolo Gentiloni, in his farewell to office.
Along with the evaluation of the Spanish plan, Brussels presented this Tuesday the analysis of the fiscal commitments of another 21 member states. Of this group, only Hungary has remained pending, which submitted it later. For its part, the Netherlands has not adjusted to the numbers set by the European Commission. Germany, Belgium, Bulgaria, Austria and Lithuania have yet to present their plans, countries that are either in electoral processes or have governments in office and are negotiating coalitions for new Executives.
Brussels and Madrid have not only reached a commitment to raise taxes a little more. There are also other reforms and commitments in the document that sets the guide for these next seven years. For example, spending evaluations must be made to, in 2028, reduce spending by one tenth of GDP. There are other reforms included in the document approved at the last meeting of this College of Commissioners that, in theory, seek to increase the potential growth of the economy. In reality, these reforms have already been made, because they are also part of the Recovery plan, among those carried out to fight fraud or the Climate Change Law.
Despite the support that the Government’s fiscal plans receive for the coming years, the approval is not complete. of the State by 2025 and that is a shortcoming that Brussels is aware of. Sources from the Community Executive have shown their confidence that the public accounts for next year will arrive “in the not too distant and distant future.” The department headed by Carlos Cuerpo is aware of this, although he points out that since the Ministry of Finance has also been involved in the entire negotiation process with the Commission, it will not be a problem.
