The European Commission is finalizing the details to return to the application of the new fiscal rules from 2025. A reformed economic governance framework will set the guidelines for member states which, after years of slowing spending due to the pandemic, must return to budgetary containment. to achieve European deficit and debt targets. This Tuesday, Brussels will present its assessment of the government’s budgetary plan aimed at reducing the deficit to 0.8% in 2031 and will present again ask him to send budgets for 2025.
At this meeting in Strasbourg, under the protection of the plenary session of the European Parliament taking place this week, the European Commission will present the first part of its autumn package, which will include the evaluation of the medium-term budgetary plans, recommendations because countries are in excessive deficit procedure – such as France or Italy -, and analyzes of budgets for 2025. Given that Moncloa has this last unfinished business, The Community Executive will insist that Spain present its 2025 accounts.
The message is not new. In recent months, the Community Executive has reiterated to Spain that it must send the accounts for next year. The maximum deadline expired on October 15, but the Minister of Economy, Carlos Body, has already warned that it will be delayed. The justification aimed to avoid a budgetary extension which would not be effective and would constrain the Community executive to double down on its analysis.
But from Brussels they have already warned Spain that the legal deadline for sending budgets is mid-October and that the margin is limited to a few days. Economy Commissioner Paolo Gentiloni warned the Eurogroup in October that the The “flexibility” of the European Commission is “limited”. Thus, he urged the government to submit some accounts for next year, as well as the financial plan it presented on that date. The obvious risk is that a budget plan, without accounts to support it, risks becoming a dead letter. For practical reasons, the figures in the budget plan would have no basis for ensuring their compliance.
However, the consequences of Dana in the east and south of Spain will considerably soften the tone of the community executive. The truth is that Brussels understands that the natural disaster forced it to restructure budgetary items and, therefore, that this process force to delay even more submission of accounts for the following financial year.
Regarding the evaluation of tax plans and compliance with the economic governance framework, the economic vice-president of the European Commission, Valdis Dombrovskis, indicated that Spain would benefit from greater budgetary flexibility. The new tax rules include specific provisions to deal with emergency situations, such as those related to serious events beyond the government’s control. Therefore, if a certain deviation occurs from the indications of the European Commission will be considered “exceptional“.
Therefore, the European Commission will take this exceptional situation into account when assessing a possible deviation from the 3% deficit target set by the budgetary rules for all Member States or from the trajectory of net primary expenditure set by Brussels for each Member State. country as part of its budgetary surveillance.
The structural budget plan is a document that countries had to present to Brussels for the first time this year as a prelude to the new budgetary rules. The idea of this document is to give some control to countries to take responsibility for their accounts while introducing a new variable allowing the European Commission to assess compliance: net primary expenditure instead of the deficit of the previous economic governance framework. This is a road map for four years, extendable to seven, whether additional reforms and investments are undertaken.
It was an idea that the government liked. In its budgetary plan, Spain proposes a downward trajectory of the public deficit up to 0.8% in 2031. Within this same horizon, it limits the increase in net primary expenditure to an average of 3%, a figure which exceeds the limit of 2.8% set by Brussels. In addition, Spain has committed to lowering the levels debt less than 100%, at 98.4% more precisely, already in 2027.
The document bases these figures on the strength of potential GDP growth for the coming years – 1.9% through 2028 – to establish an ambitious spending rule. will pass from 3.7% next year, to 3.5% the following year, and to 3.2% in 2027. Subsequently, it will fall to 3% in 2028 and 2029; to decrease again to 2.5% and 2.4% in 2030 and 2031. Furthermore, the Ministry of Economy stressed that the spending capacity could increase if tax increases are approved in the future.
Excessive deficit procedure
Even if Spain was spared last June from an excessive deficit procedure, the same was not true for France, Italy and five other countries. This Tuesday, the European Commission will present the guidelines to follow for these member states to respect the deficit objective of 3% of GDP. A priori, it would be a minimum adjustment of 0.5% of GDPand countries that do not comply face fines from Brussels.
Rome and Paris closed 2023 with both levels of highest deficits in the eurozone, 7.4% and 5.5%. This is the year that Brussels would take into account to assess which countries would or would not enter the sanctions procedure. Even though Spain ended up with a deficit of 3.6%, the European Commission considered such a gap to be temporary since forecasts predict that the Spanish deficit will close at 3% this year. However, the European Tax Council, the European tax authority, criticized the decision regarding Spain, calling it “discretionary” and highlighting the “lack of consistency”.
