Brussels warns that without tax reformwhich is currently on hold for lack of sufficient support from its parliamentary partners, the government of Pedro Sanchez will not be able to respect the budgetary adjustment trajectory promised to the EU, even in the current context of strong economic growth and record tax collections. The Community Executive will publish its assessment of the multi-year financial plan that the Minister of the Economy, Carlos’ bodysent to the Belgian capital in October.
In its autumn economic forecasts published this Friday, the Commission of Ursula von der Leyen revised Spain’s growth upwards to 3% in 2024, nine tenths more than what it had calculated in May. Our country’s expansion rate has tripled this year the EU average (0.9%) thanks to rising domestic consumption and tourism, although it will slow sharply to 2.3% for the year. next and to 2% in 2026 (still above the community average). ).
Brussels’ calculations still do not take into account the economic impact of Valencia DANA, but the Commissioner responsible for economic affairs, Paolo Gentilonisent a reassuring message. The flooding will have “some short-term consequences” in the form of business closures or immediate costs, but In the medium term, reconstruction will have a “positive impact” in macroeconomic terms.
In the budgetary area, the Commission predicts that – leaving aside DANA – Spain will achieve the objective of reducing the deficit from 3.5% in 2023 to 3% this year, the limit provided for in the Stability Pact. Thanks to this, our country was spared a sanction case for excessive deficit in June. This improvement is due to withdrawal of most aid linked to the energy crisis and increased tax revenues from the end of VAT reductions and excise duties on electricity.
Gentiloni confirmed that he would consider the costs of fighting DANA as an “extraordinary” expense. “We are not going to take it into account for an excessive deficit procedure when we examine a possible deviation from the famous 3% threshold,” explained the Commissioner for Economic Affairs in response to a question from EL ESPAÑOL-Invertia . He also confirmed that Brussels will allow the Sánchez government to redirect part of the Next Gen funds which have not yet been used in the reconstruction of Valencia, as has already been done in Slovenia, Greece or Italy, but no figures have been given.
For the years 2025 and 2026, the Corps’ multi-year adjustment plan projects that the deficit will continue to decline by up to 2.5% and 2.1%, respectively. The Community Executive considers that it is impossible to achieve these objectives if additional measures are not adopted as part of the tax reform. Indeed, its forecasts place the budget gap at 2.6% next year, with a further increase in the deficit to 2.7% in 2026.
#ECForecast | European economic forecast fall 2024 for Spain 🇪🇸. ↓↓↓↓ pic.twitter.com/TGQGg5cybk
– European Commission (@EuropeanCommission) November 15, 2024
“At constant policies, the public deficit will decrease in 2025 to 2.6% of GDP, despite slightly higher interest expenditure. This decrease is due to lower growth in primary expenditure financed by the State and to the positive evolution of tax revenues, particularly directdriven by strong nominal GDP growth,” the report said.
“In 2026, the deficit will increase slightly to 2.7% of GDP with the expiration of taxes on banks and energy companies,” notes the Commission. The Sánchez government intended to extend both taxes, but does not have sufficient support from its partners even for this minimum tax reform.
Despite this, Commissioner Gentiloni remains convinced that there will be a solution when it comes to tax reform. Beyond reducing the deficit, this reform constitutes a fundamental condition for unlock the fifth installment of Next Generation fundswhich includes 7 billion euros in subsidies and is already a year late.
The Minister of the Economy announced his intention to present the file (which must also include a first tranche of loans) before the end of the year. “We are working with the Spanish authorities and I am hopeful that we will find a way to resolve the outstanding issues,” Gentiloni told the newspaper.
According to Brussels forecasts, The high unemployment rate continues to be the great black hole of the Spanish economy. Our country will remain the absolute leader in the EU in unemployment at least until 2026 and will be the only one to record double-digit figures next year and the year after. The Community Executive estimates that the unemployment figure will barely drop from 11.5% this year to 11% in 2025 and 10.7% in 2026.
