The government let the deadline expire this week to present to Brussels its roadmap to reduce the debt and deficit over the next four years. Moncloa will therefore postpone as much as possible, until October 15, the margin for sending the data, but It is not the deadlines that, in the Spanish casefurther worries the community executive.
As revealed elEconomista.es According to sources close to the Community institutions, the latter fear that the The financial plan they will receive in the middle of next month is a dead letter from the moment it is defined, because it does not even have short-term support from the state budget for 2025.
These same sources emphasize that A control plan can hardly be credible public accounts for the next four-year period – extendable to seven years in the event of the commitment of additional reforms and investments –, if the Spanish State remains subject to the budgetary roadmap defined in 2022 – with effect from 2023 –, the last one that was approved.
But in 2025, this deficiency would be particularly serious. It is not in vain that it is in that year that the Treasury wants to begin the implementation of the Catalan tax agreement, concluded in this autonomous community by the PSC and the Esquerra Republicana. The transfer to the Generalitat of the management of all taxes collected in Catalan territory This will completely disrupt the system of revenue and expenditure of the Administrations in force since the Transition.
The Generalitat will see its resources multiplied by twelve, but will reduce disposable income to the same extent for the entire autonomous financing system of the common regime.
This reduction entails a sharp increase – of the order of 30%, according to Fedea calculations – in personal income tax in the rest of Spanish territory, or a sharp reduction in public spending, if we want to guarantee the sustainability of the system.
But none of this will be officially reflected in the plans that the government will have to present to Brussels, if its current lack of parliamentary support prevents it, as happened last year, The new state accounts are approved with a new spending ceiling.
For now, the only thing the Spanish government has managed to do is buy time, without solving the underlying problem. Brussels has put in place official deadline September 20 for EU countries to submit their structural budget plans for the coming years. Economy Minister Carlos Body announced to Congress on Wednesday that Spain would present its structural budget plan to the European Commission on October 15, “in accordance with the regulations.”
It is true that such a postponement still requires the approval of the European Commission, according to Community sources. Brussels is currently assessing the situation and plans to confirm within a “short time” whether it agrees or not with the extension requested by the government. The Community executive must analyse on a case-by-case basis the reasons why each Member State is arguing skip this deadlinealthough it will be flexible because these are the first steps of the process and the first time this financial plan has to be presented.
But even with the agreement from Brussels, everything is at stake here. The Government will test the support of its government partners, especially the Junts, which continue to surprise with the successive setbacks of the laws promoted by Sánchez’s Executive. The first test will come next week. The Government plans to present to Congress on Thursday its tax trajectory for all public administrationsthat is, its deficit and debt targets for the State, autonomous communities and municipalities, which are due to come into force in 2025.
The precedent is not encouraging since in July, Junts, in collaboration with PP and Vox, cancelled the treatment of the deficit targets and these are the same numberswithout any changes, those who will return to the Lower House this Thursday.
That day will be the second assault to try to advance on the fiscal path that will allow to relaunch the processing of the general budgets of the State for 2025. If this is achieved, the government will be able to approve the draft budget law during the year. Council of Ministers next year and present it to Congress on October 15. All this taking into account the fact that it will not be really easy to consolidate the support to achieve this distribution of resources.
However, if there is a new rejection next week in Congress, everything would go back to square one. The Council of Ministers should reapprove the debt targets and resubmit them to Congress.
The deadline would be extended, not only internally but also to comply with Brussels. In such a case, it is very likely that the Executive would be forced to throw in the towel as he did in 2023 and extends, for the second time, the Accounts of this year, the last in force in Spain.
18 Member States
For now, Madrid can argue to Brussels that by presenting its structural budget plan late, it is not so much the exception as the norm. Only one country, Denmark, submitted this roadmap on time. Up to 18 EU countries will be eligible before the October 15 deadline. including France, Italy and Ireland, beyond Spain. The reading of this postponement is, in a certain way, “acceptable” for the Community Executive, which refuses to see the delivery process delayed beyond this limit.
Time is running out. After years of high spending due to the pandemic and, subsequently, the energy crisis caused by the war in Ukraine, EU governments will have to get back on track budgetary consolidation to comply with the new economic governance frameworkA framework which, like previous budgetary rules, sets a deficit limit of 3% of GDP and 60% in the case of debt.
The Community Executive will, however, make an exception to this deadline for countries which, like Austria, are taking part in general elections or are still in the process of forming a government. Brussels believes that it would not be logical to demand these plans from Member States which are in a change in the electoral cycle, even if he hopes to have a balance sheet to monitor before the end of the year.
This structural budget plan consists of a four-year roadmap in which measures must be included to ensure that the deficit trajectory will decrease to 3% of GDP or will not exceed this threshold. In the case of debt, this requires a downward trajectory for countries that are above 60% of GDP, as is the case of Spain, or the maintenance of these levels for countries that are below. The downward trend must consolidate after the plan period has ended to four years, which could be extended to seven years if additional reforms and investments are undertaken.
This situation, the downward trend in the years following the plan, is particularly sensitive for Spain. According to the European Commission’s projections from last spring, Madrid will manage to reduce its debt level to 104.8% by the end of 2025. warns that in 2032 its levels will rise to 113% of GDP. A situation that would break with what is established by tax rules.
The new EU economic governance will look at net primary expenditure and exclude debt interest and other expenditures considered cyclical. The European Commission has already taken the first steps on how this dynamic will be applied. In 2023, Brussels recommended to Spain that the spending ceiling should not exceed an increase of 2.6% in 2024. However, in the spring economic forecast, the Community executive stressed that it would increase by 3.8%, above the maximum recommended by the European Commission.
If a Member State sends Brussels a plan that does not comply with the guidelines issued by Brussels In June, the European Commission will ask this government to submit another plan that will be limited to its recommendations. In the absence of an agreement between the Community executive and an EU country, the Member States, within the Council of the EU, will have the final say.
Among the measures that, last June, the European Commission suggested to Spain to modernize its tax system. It presented two options to increase revenues within the framework of the tax reform. On the one hand, it reminded him that he had the possibility of considering new environmental taxes, which represent 1.5% of the GDP compared to the 2% they represent on average in the EU. For this reason, he considers that Spain still has a long way to go with formulas similar to the “polluter pays” principle.
The European Commission has put on the table the possibility of increasing taxes on consumption, while protecting the most vulnerable with compensatory measures. He also proposed that the recommendations of the Independent Authority for Fiscal Responsibility (Airef) be respected to improve the efficiency of public spending, particularly in sectors such as health.
Sanction procedure
France and Italy, along with five other countries, entered the EU sanctions procedure against member states with excessive deficits last spring. In the case of Paris and RomeIt is not just that their deficit levels exceed this 3% threshold, but that they are actually leading the public deficit levels in the euro area. Belgium, Hungary, Malta, Poland and Slovakia are also affected by this procedure.
Rome leads the eurozone economies with the highest deficit, at levels of 7.2%, which, in principle, will be reduced to 4.4% this year. Despite this, Meloni has in his pocket a series of measures aimed at reducing the tax burden. In all this calculation, it is important to consider that Paris and Rome have higher European debts, at levels 110% and 137%, respectively, end of 2023.
As France enters negotiations with Brussels over its 2025 budget plan and deficit reduction plan, the new French Prime Minister, Michel Barnier, is speeding up the deadlines for presenting a new government before the end of the week.
” Paris asked for an extension in early September for sending its public deficit reduction plan to Brussels. The idea is to have a a roadmap until 2027 supplemented by the budget plan, so as to enable corrective measures to be taken to comply with budgetary rules and avoid sanctions.
For its part, the government of Giogia Meloni was willing to achieve this objective of 3% deficit in 2026. Rome’s trajectory indicates levels of 3.6% in 2025 and 2.9% in 2026. For the moment, its budget plan has not reached Brussels either.
However, it will be necessary to wait until November for the European Commission to propose to these countries on the path to adjustment to reduce this deficit. The Community Executive will wait to see the structural fiscal plans and the budgetary plans before issuing its recommendation.
