The General Council of Economists (CGE) and the Foundation for Applied Economic Studies (Fedea) have presented a report that highlights the need to implement a budget consolidation plan to achieve a zero deficit in the Spanish economy. The president of the CGE, Valentín Pich, said that It is essential to stop self-deception and move towards the goal of zero deficit.and even towards surpluses. Pich stressed that “It is not sustainable that permanent deficits have persisted since 2008 and that the solutions to correct this situation are limited”.
He explained that, although three possible alternatives could be considered, increasing revenues does not seem to be the appropriate option. He argued that, given the country’s productivity, its location in southern Europe and the structure of the public sector, increasing revenues is not the right way to solve the budget deficit. In addition, rejected the idea of mutualising debt at community level or generate new revenues through this route, as some Northern European countries are showing tensions regarding this possibility.
Pich also stressed that the country’s spending structure is difficult to change, especially because of existing institutional tensions. However, he stressed the need to take advantage of the return of European Union budgetary rules to guide Spain towards greater economic stability.
Ángel de la Fuente, director of Fedeafor his part, highlighted the problem of excessive complexity of the system, stating that “nobody understands” how it actually works. This lack of clarity, added to what he considers chronic inefficiency, is aggravated by the lack of fiscal responsibility on the part of the Autonomous Communities. According to his analysis, these entities tend to spend more than they have, believing that, one way or another, they will always be saved.
Cristina Herrero, President of the Independent Authority for Fiscal Responsibility (AIReF), Also present at the event, he recalled during the presentation of the report that his organisation had already warned that, in order to comply with Brussels’ budgetary rules, a reduction of 0.4% of GDP would be necessary if additional measures were not implemented to reduce spending.
Herrero stressed the importance of the structural budget plan that the government must present to Brussels before September 20even though the deadline should be extended until October. This plan must detail how the Executive plans to reduce the public debt in the coming years. Blacksmith expressed concern that he did not know the exact content of the plan or what information the government had shared with the European Commission.. AIReF will have to assess the coherence and effectiveness of the plan in relation to the budgets.
The AIReF President also stressed the need to reform the national budgetary framework to address inconsistencies with the new European budgetary rules, particularly regarding the inclusion of pension expenditure.
Regarding the proposals for action proposed in the joint CGE-Fedea document, they consider that Fiscal consolidation should focus primarily on controlling public spendingwith particular emphasis on that intended for pensions. This adjustment must be accompanied by structural reforms that improve the efficiency of the management of public administrations. In addition, suggest tax reforms aimed at broadening the tax base, which would involve the removal of reduced VAT rates and the revision of the module system, giving priority to environmental taxes promoting the energy transition. At the same time, the fight against tax fraud should be strengthened.
Criticism of singular financing
They also expressed strong criticism of the pact between the PSOE and the ERC, which proposes that Catalonia manage 100% of its taxes and dissociate itself from the general regime. According to experts, this measure is “unfeasible” and compromises tax fairness.
De la Fuente called the proposal a potential “disaster.” According to De la Fuente, allowing the richest territories to keep all of their budget surpluses could hamper the financing of territorial leveling and uniform social policies in the country. In addition, warns that the State could find itself without its own tax resources, which would place it in a weak position vis-à-vis the territories and deprive it of the tools necessary to fulfil its functions.
He also regretted that his warnings had not been heard and announced that he would continue to defend his position.
Herrero, at this point, indicated that AIReF has not expressed itself on how things should be structured, highlighting two red lines. According to her, the institution will only speak out if the proposed measures have an impact on the sustainability or in the viability of the new fiscal governance framework. Furthermore, he warned that addressing the problem challenges in a “fragmented” manner could have negative repercussions in terms of fiscal sustainability, since the receipt of additional funds by one administration could lead to an increase in expenditure without compensation from other administrations, thus affecting the country’s fiscal parameters.
Budget extension will not limit spending
The AIReF president also said that a possible extension of budgets for next year would not limit spending, although she stressed that this situation “is not ideal”. However, she indicated that “an extension implies certain limitations, because it does not allow for increased spending”. However, in practice, governments often find ways to exceed these budgetary limits.
Herrero joked that large new projects without budgetary appropriations often require “budgetary and accounting engineering” to become a reality. Although in practice a budget extension does not have a significant impact, she stressed that it is not the most desirable option, since the budget reflects the government’s intentions and is an important accountability tool.
Retirement measures
In addition, De la Fuente proposed measures for pensions, such as adapting the retirement age to life expectancy and basing the calculation of pensions on the entire working life, with a revaluation only for minimum pensions.
In his speech he said that The last reform of the pension system was counterproductive, because instead of limiting spending, it encouraged it.. He argued that it is necessary to establish formulas to control expenditure, including extending the pension calculation period to cover the entire working life. However, he specified that if this extension is not implemented, at least the most unfavourable months should be eliminated from the calculation.
He criticised the fact that the reform had cancelled the positive effect of the previous measures concerning the first charge.and suggested reconsidering the Universal indexation of pensionscompensating 100% of minimum pensions, but leaving some flexibility for others.
From the Source too proposed extending working life, as people live longer and spend more time in educationwhile stressing the need to maintain proportionality in this extension. He stressed that there are different ways to achieve this, such as reviewing the sustainability factor or linking the retirement age to life expectancy, always taking into account the particularities of the most physically demanding professions.
In the long term, he advocates a system similar to the Swedish one, based on national accounts, which provide flexibility and ensure the sustainability of the system by linking profitability to the growth of the economy. He acknowledged that in the coming decades, especially As the baby boom generation retires, it will be inevitable to turn to other sources of funding, but he insisted that it should be done in a less distorting and more transparent way.
He proposed the introduction of a surcharge on personal income tax and on all income, stressing that, although the clause of the Intergenerational Equity Mechanism (IEM) addresses part of the problem, it does not solve it completely, which is why he considers it necessary to rethink the reform as a whole.
