The government will limit the growth of average net primary expenditure to 3% over a seven-year horizon. La Moncloa approves the structural budget plan that it will send during the day to Brussels, in which it outlines a medium-term roadmap with which it promises to reduce the deficit to 2.5% in 2025, to 2.1% a year later, to 1.8% in 2027, and to 1.6% in 2028; and reduce the debt ratio below 100% (to 98.4%) in three years. In this way, the Economía excludes guaranteeing compliance with the community directive through a tax adjustment, but rather agrees to approve a tax reform generating additional revenue. The document also relies on the strength of potential GDP growth in the years to come, around 1.9% until 2028. The economy thus establishes a rule of decreasing spending. It will increase from 3.7% next year, to 3.5% the following year, and to 3.2% in 2027. From then on, the increase in spending will fall to 3%, both in 2028 and in 2029; to fall to 2.5% and 2.4% in 2030 and 2031.
The Bank of Spain and AIReF recommended undertaking the plan from a budgetary adjustment. The tax authorities have developed two scenarios. A gentle adjustment, which would require limiting spending growth to less than 3% within seven years, which would result in an annual adjustment of four tenths of GDP, or 6 billion per year. A more aggressive adjustment would have reduced the adjustment period to four years, but would require a reduction equivalent to 0.63%, or around €9 billion per year.
It should be remembered that although the path extends until 2031, the Government recalls that the commitment is until 2028, from there it will develop a new update of the updated path with a new horizon of four years.
The truth is that the document that will be sent to Brussels today – the last day of the deadline – compromises the government’s negotiating margin on the path to stability. The Executive maintains the deficit target at 2.5% next year, but recognizes that the State would be willing to assume a greater effort than expectedor to give greater spending capacity to the LACC, as required by Junts. “We believe that an agreement is possible so that it is favorable to what the LACC requires, adjusting to 2.5%,” said Economy Minister Carlos Body during the press conference. which followed the Council of Ministers. The road map also compromises the open round of negotiations around the budget project. Moncloa now has a limit to increase its spending, so it will have to select with a surgical eye the demands that the groups will put on its table in exchange for its support.
Furthermore, in the document sent, the Government commits to the European Commission to approve a tax reform – which will include the permanence of banking and energy taxes – and which will be announced before the end of 2024, despite the fact that Moncloa Il I’ve been thinking about this step for months. Brussels obtains the commitment of the Executive, on condition of being able to deploy the gentle adjustment strategy over seven years. Minister Body assured that the package of tax measures was being negotiated with the European authorities.
