The government will send the first structural budget plan to Brussels on Tuesday, a document which will include specific commitments to adjust public accounts for the years to come, as provided for in the new European budget rules.
What is the medium-term structural budget plan
The European Commission defines tax plans as the cornerstone of its new economic governance framework. This document, which all European countries must sendincludes the path tax for the next four yearswhich must be compatible with progressive and sustainable debt reduction, as well as investment and reform priorities. In other words, this document specifies to what extent governments are committed to adjusting their public accounts and how they plan to do it.
How the tax plan differs from the documents sent so far
The tax plan is the way in which the new European tax rules are implementedwhich aim to implement a simpler system to progress towards compliance with the fiscal compact – that the deficit does not exceed 3% of GDP and that the debt does not exceed 60% of GDP. Among its main differences are:
– Adjustment commitments are medium term -four years as a general rule, seven if certain structural reforms are compromised- instead of annual, which aims to avoid the objectives being reformulated every year. In fact, the plan can only be revised in exceptional circumstances, such as a change of government.
– Surveillance will no longer be focused on the deficit but on structural expenditure net of incomea measure which excludes expenditure on interest or financing European programs but includes pensions, and which can be offset by new income. In practice, controlling that spending does not increase if income does not also increase makes it possible to reduce the deficit and the debt.
– Account settlement measures are proposed by countriesinstead of being imposed from Brussels, even if the Commission must certify that they are sufficient to put the debt on a long-term downward trajectory.
How much Spain will have to settle its accounts
At the moment, we don’t know. Before the summer, the European Commission communicated to all countries that exceed the European deficit and debt thresholds (such as Spain) a specific reference trajectory – a projection of the maximum net expenditure that they can assume over the course of over the next four or seven years for putting public debt on a downward trajectory-, but the government has not made it public. Based on this rate, the Executive negotiates with the Commission how the adjustment will materialize, conversations which, at the beginning of this week, were not yet closed.
In a preliminary calculation, the AIReF estimates that a budgetary adjustment of 0.63 points of GDP per year would be necessary if it were carried out over four years or of 0.43 points of GDP per year if it were carried out in seven years, which would involve reducing the increase in spending. 10,000 or 7,000 million per year, respectively.
How accounts will be settled
We don’t know that either. The adjustment commitment affects net primary expenditure, that is, the amount of expenditure that can increase from one year to the next, at most, if specific measures are not adopted to increase further. SO, the plan can choose to either contain spending -which could involve cuts in some areas to offset growing pension spending- and implementing revenue measures -with tax increases or policies to increase the base on which these taxes are applied-.
The President of the Government, Pedro Sánchez assured this week that the plan would not include cutsbut “responsible spending commitments” and he recalled that Spain has a budgetary pressure four points of GDP lower than the European average.
What will the tax plan contain?
Other states’ plans that have already been made public include macroeconomic and budgetary forecasts until 2028adapted to the trajectory proposed by the Commission, and a list of reforms and investments they plan to implement. The Congress of Deputies is not obliged to approve the planeven if the Minister of the Economy, Carlos Body, promised to present it to the Cortes after sending it to Brussels this Tuesday, October 15.
