The European Commission warns Spain that it will deviate from the path of reducing the deficit in 2026 if it proceeds to eliminate taxes on energy companies and banks. Brussels estimates that Madrid will adjust to the 3% deficit target set this year. Then this figure will decrease to 2.6% in 2025 but will increase to 2.7% the following year. At the same time, forecasts for gross domestic product (GDP) expansion are optimistic. The community executive raises this year’s GDP growth to 3%, to record growth above 2% in the following two years.
In its autumn economic forecasts, released this Friday, the European Commission warns about Spain’s prospects and exerts pressure to advance a complex tax reform, initiated as part of the fifth installment of the Recovery Plan. “In 2026, the public deficit is expected to increase slightly to reach 2.7% of GDP, as it is expected to levies on banks and energy companies expire“, indicated the Community Executive in its analysis.
The government has postponed until next week the vote on the tax package, which includes, among other measures, the permanence of the tax on banks and energy companies. The lack of support in Congress limits Sánchez’s room to promote these measures, which include the elimination of the special tax regime for corporations, the tax on luxury goods or the exemption of private health insurance premiums.
Once again, the difficult parliamentary arithmetic works to the disadvantage of Sánchez’s executive. Neither ERC, nor Bildu nor Podemos, on the left, nor PNV or Junts on the right, show any desire to support the agreement. And the tax reform demanded by Brussels as part of the fifth installment of the Recovery Plan risks remaining at a minimum. Remember that this fifth disbursement was planned for early 2024 and that the Government is rushing to respect the deadlines agreed with Brussels. ““I am optimistic and believe that we will be able to resolve the outstanding issues,” The Commissioner for the Economy, Paolo Gentiloni, indicated this during a press conference when asked about this fifth request.
The other element to consider in this calculation of the deficit is the resources redirected by the government for the management of Dana. “Risks to the forecasts relate to the scale of nationally financed spending to meet the repercussions of the recent floods in the Valencian Community”underlined the Community Executive in its analysis.
But the European Commission will give Spain budgetary space to deal with the natural disaster. The Economic Vice-President of the European Commission, Valdis Dombrovskis, said this a few weeks ago and it was reiterated by the Commissioner for Economy, Paolo Gentiloni: “from our point of view, This type of expense is exceptional, so we do not count it in excessive deficit procedures when assessing deviations from the famous 3% limit. “We don’t take into account this type of extraordinary expense.”
The Italian also made a brief analysis of the impact that Dana could have on the Spanish public accounts: “we expect, in the short term, certain consequences of this tragedy, such as companies not continuing their activity, or at certain immediate costs. In the medium term, the tragic reality is that the cost of reconstruction has a positive impact on the macroeconomic accounts.
Gentiloni made it normal for the funds from the recovery plan to be allocated to deal with the consequences of flooding. An objective that the Minister of the Economy, Carlos Body, announced at the start of the week, with his intention to present a revision of the plan in Brussels before the end of the year.
“This is what we have done in recent months in Slovenia or Greece after the floods. It is normal for the European Commission to cooperate with the national authorities to redirect, if requested, part of the Recovery plan to deal with this emergency”the Italian indicated
Brussels estimates that Madrid will meet this year with the aim of reducing the deficit to the limit of 3%, in accordance with the objectives set by the budgetary rules. Achieving such an objective would legitimize Brussels for having prevented Spain, last spring, from entering into an excessive deficit file. What I had to look at at that time was the closing deficit figure for 2023, which stood at 3.6%. But the forecast that this figure would fall to 3% in 2024 allowed Spain to escape the sanctions case. The argument put forward by Brussels was that this was a “temporary” deviation.
