On October 15, Spain sent to Brussels its structural budget plan, that is, the road map for reducing the debt and deficit in the years to come, which will mark the budget strategy that the executive will follow Spanish. The Moncloa plan predicts that net primary expenditure will increase by 3% over the seven years it covers, a figure two tenths higher than the Brussels recommendations and which is about 1.2 billion more.
“The reference trajectory proposed by the Commission implies a maximum average growth rate of net expenditure 2.8% during the adjustment periodwhile the spending commitments integrated into the plan result in an average annual growth of 3%,” indicates the budget plan document that the Government sent to Brussels.
The Spanish executive argues such a gap, that 0.2% in addition, for “analysis of debt sustainability, the impact of pension reform and the latest available demographic data”. Moncloa uses the latest demographic data projected by Eurostat, as requested by the European Commission. According to their analysis, demographic forecasts will have an impact of 0.1% on the spending rule, to which would be added an additional 0.1% due to the impact of pension reform from 2031.
The key to understanding all this is the application of the new economic governance framework from 2025, which establishes that countries must not exceed levels of 3% deficit in relation to GDP and 60% in case of debt. To achieve these numbers, plans must present a strategy by which they will achieve these goals. To this end, the European Commission will carry out a careful review of net primary expenditure, instead of observing the trajectory of the deficit like that marked by the previous Stability and Growth Pact.
The European Commission’s figures, however, differ from the Moncloa adjustment and seem more demanding. The Community Executive has proposed a path to reduce the increase in health costs 3.2% in 2025 to increase to 2.8% in 2026, reach 2.7% between 2027 and 2029 and reach 2.5% in 2031.
The government opted for a seven-year budget plan, instead of four, committing to reforms and additional investments, as required by budget rules. Set a spending trajectory which will increase from 3.7% in 2025 at 3% four years after the plan is implemented and at 2.4% at the end of the period, in 2031.
Such a trajectory would allow Spain to reduce the deficit from the 3% forecast for this year to 2.5% in 2025 in a progressive dynamic up to 0.8% in 2031. The debt would also follow a downward trajectory, being lower 100% in 2027 to reach 90.6% at the end of the adjustment period.
The trajectory proposed by the government foresees an increase in spending of 3.7% by 2025. A figure which, in itself, is higher than the levels that the European Commission proposed for Spain this year, in its spring recommendations . He warned that his forecasts suggest net primary spending will rise to 3.8% this year, compared to to the 2.6% recommended by the Community Executive
The Spanish government justifies in its document that the update of Eurostat’s demographic projections leads to greater potential GDP growth in the short term due to the incorporation of a higher level of migratory flows, explaining 0.1 points of the difference in spending trajectories, says the government. .
The reform of the Stability and Growth Pact gives member states greater control over their own finances. This is one of the main changes compared to previous budgetary rules, although some guarantees to be respected are maintained, such as the deficit and debt limits of 3% and 60%, respectively. Countries must present their adjustment plan to Brussels, which will focus on the trajectory of spending rather than the deficit. However, for countries that exceed these thresholds, the European Commission will propose a reference trajectory, in this case that of 2.8%.
