THE Foundation for Applied Economic Studies (Fedea) predicts that Galicia will close the year 2024 with a surplus of 0.4% of gross domestic product (GDP). This progression contrasts with the average deficit of local authorities, which will close the year at 0.4% of GDP, figure slightly higher than the negative balance of 0.3% forecast by the Independent Authority for Budgetary Responsibility (Airef) and “well above” the government’s forecasts for a balanced budget.
According to these forecasts, nine municipalities in total will end 2024 with a deficit: Valencian Community (-1.8%); Murcia (-1.6%); Catalonia (-0.7%); Community of Madrid (-0.5%); Castile-La Mancha (-0.3%); Basque Country (-0.3%); Andalusia (-0.3%); Extremadura (-0.1%) and Castile and León (-0.1%).
On the other hand, eight autonomy will end 2024 with a positive result: Asturias (1.2%); Canary Islands (0.9%); Navarra (0.7%); Cantabria (0.7%); Balearic Islands (0.6%); Galicia (0.4%); La Rioja (0.3%) and Aragon (0.1%).
In its last report in July, Airef estimated a surplus for the region of 0.2% of GDP at the end of the year. In addition, he stressed that he appreciated the “risk of non-compliance” with the spending rule in the Galician community for 2024, which also happens in the rest of the autonomies.
For Fedea, the forecast of a regional deficit of 0.4% of GDP for this year “is not good news”, because apart from the fact that the reduction is much lower than that forecast by the government, this gap occurs “due to the strong growth in spending”, consumption, particularly public and there will therefore be “structural deterioration”, they explain.
Bad data
This is what Fedea underlines in a new issue of its Tax and Financial Observatory of communitiesprepared by José Ignacio Conde-Ruiz, Manuel Díaz and Carmen Marín, in which it analyzes regional revenues and expenditures until July 2024 and presents an estimate of the regional budget balance at the end of the year.
“If our deficit forecast is confirmed, not only would this be bad data given the growth in resources experienced by the regions in 2024, more than 20,000 million from the Autonomous Financing System (SFA) compared to 2023but rather the path to reducing the deficit of all Public Administrations announced by the Government for this year would be threatened”, warns Fedea.
For this organization, with the new European budgetary rules for the year 2025, budgetary consolidation in Spain “this cannot be delayed any longer” and should be “one of the main tasks” of the government. According to him, the participation of the Autonomous Communities in this consolidation plan should be fundamental, given that this administration represents the majority of public consumption.
According to data published by the General Intervention of the State Administration on September 30, the balance in National accounts until July 2024 of the autonomous communities. was -1,419 million (-0.1% GDP), which represents an improvement compared to the balance for the same period in 2023, which was -3,282 (-0.2% GDP).
Differential income-expenditure effects
This improvement is driven by the liquidation of the 2022 Autonomous Financing System, which until July 2024 provided communities 9.387 million euros more than the 2021 regulationsreceived in July 2023.
Instead, non-financial expenses in National Accounting increases by 6.9% until July 2024 (9,566 million euros). For Fedea, this growth is “worrying” because it exceeds that expected for nominal GDP (5.9%).
In the projection exercise to estimate the end of the year 2024, Fedea starts from data from July 2024 (-0.1% of GDP) and adds the balance of the National Accounts for the months from August to December 2023 (-0.7% GDP). To “refine” its projection exercise, Fedea takes into account the differential effects on income and expenditure between August and December 2024 compared to the same period in 2023.
The agency considers the higher expected deposits (10.362 million) as differential income effects and estimates a slight increase in the collection of Real estate transfer rights and documented legal acts (382 million). The two effects represent an increase in resources of 10.744 million euros (0.7% of GDP).
Personnel costs
Concerning the differential effect of expenditure, the impact that the increase in expenditure observed from July 2024 in each community will have, if it is maintained, is added to personnel expenditure items, intermediate consumption, social transfers in kind and interestwhich Fedea estimates at 5.480 million.
In the case of personnel costs, also consider an additional effect. Until July 2024, an increase of 0.5% in personnel expenses for 2023 has been recorded, and Fedea calculates that this effect represents a reduction in this expenditure between August and December 2024 of 510 million. In sum, the total effect represents an increase in spending of 4.971 million (0.3% of GDP).
Therefore, the differential effects of income and expenditure as well as the expected balance from August to December give rise to a autonomic deficit in terms of national accounts of 0.4% of GDP, according to calculations made by Fedea in this report.
