The government is beginning to pave the way for a new path to stability that provides greater fiscal space for the CCAA – at least – in 2025, as Junts demands. The structural budget plan that the government sent to Brussels on Tuesday includes a deficit trajectory “compatible” with an increase in the “additional margin” for the regions. This was confirmed by Carlos Body, during the press conference after the last Council of Ministers. “We believe that an agreement is possible so that it is favorable with the LACC, adjusting to 2.5%,” revealed the Minister of the Economy.
In recent days, contacts between the PSOE and the party led by Carles Puigdemont have intensified. The training requires that the fiscal trajectory – on which the budget project will be based – includes a deficit limit for autonomy close to 1%nine tenths more than that approved, or set a more favorable distribution of objectives for the regions that contribute the most to the national GDP, with Madrid and Catalonia in the lead. Either option would require the state to take on a larger adjustment effort starting next year.
In the original document, the Executive reserved a deficit ceiling of 2.2%, granting the LACC that of 0.1%. Junts’ maximum proposal would reduce this central government budget deviation margin to 1.3%, which could awaken the European Commission’s reservations. Brussels fears that the indiscipline of certain regions – such as the Valencian Community or Murcia – will add several tenths to the final objective, and considers that it is difficult for the State to end up adjusting to a deficit limit so strict. AIReF predicts that both regions will close this year with a deficit of more than 1%. The negotiation could result in a middle ground, resulting in a less adjusted distribution for the State, and moving closer to a spending margin closer to 0.5% for the LACC. The budget plan sent to the EU provides for an annual budgetary adjustment of 0.4% of GDP each year until 2027around 6 billion euros per year.
However, the budgetary plan entrusted to the European Commission includes a joker that Moncloa will activate throughout 2025 to guarantee compliance with the deficit limits. The document sent to Brussels forces Spain approve tax reform – which we have already started to discuss – and whose content we do not know. We only know that the ratio of income to GDP could increase by 0.3 points until 2031, and that it will include the permanence of banking and energy taxes. However, the wording of the plan suggests that it will take up several of the recommendations of the 2022 budget white paper. The text sent proposes measures to “support the energy transition and promote equity”, as well as a review of the “impact tax advantages”. .
The wild card of tax reform
The working document that the head of the Treasury, María Jesús Montero, commissioned from a group of experts in 2022 proposes structural changes, such as the removal of one of the two reduced VAT rates, which could increase collection – according to the calculations of the Tax White Paper – between 11.775 million and 17.123 million euros which would be obtained with a total simplification of the tax. The creation of an environmental tax package is also envisaged, bringing the Spanish tax pressure closer to that of Europe. The EU receives five points more than Spain for green taxes, or 2.3 points compared to 1.7 points. But what the experts emphasize the most is the need to bring the progressiveness of the personal income tax closer to capital income, to that which taxes work income.
“Whoever earns a million euros thanks to capital income pays the same price as a person who earns 42,000 euros thanks to work income,” recalls the president of Gestha, Carlos Cruzado. Only a tax reform approached from a structural point of view can guarantee sustainable collection. “The current tax system is like a car with many problems that does not allow you to drive on the highway at 120 km/h,” explains professor of applied economics and researcher at Funcas, Santiago Lago. Analysts are calling for a text that does not allow the performance of the Tax Agency to be affected by the growth of the economy, as happened after the end of the pandemic.
An increase in revenues by one of these two means would not only strengthen compliance with deficit commitments, but also make it possible to maintain the spending rule – around 3% – proposed for the next seven years. “If structural income measures are applied, spending could increase further,” say sources at the Ministry of the Economy. However, tax reform that incorporates any of these structural tax changes must have the approval of the Congress of Deputies, which expects a tough parliamentary battle.
Junts moves away from Feijóo and moves towards a deal with the government
Junts is moving towards an agreement on the path to stability with the government. “We are negotiating piece by piece, cut by cut. If they comply, we will continue. Otherwise, no,” parliamentary spokesperson Miriam Nogueras said last Wednesday in statements to RTVE.
After months in which the party abandoned several key executive initiatives in the Congress of Deputies, Puigdemont’s team is correcting its strategy. The motion of censure against Sánchez – with which the PP hesitated last week – ended up forcing unexpected support from Junts to the President of the Government. “Together we will not support any motion of censure from the PP and VOX. We are the only party that is not part of any Spanish blog. Our commitment is to Catalonia and the Catalans,” Nogueras confessed. The party that had to correct – like that – the president herself postconvergentLaura Borrás, who – asked hours before – had once again played the game of confusion with the possibility of putting Sánchez on the ropes. “Our votes cannot be taken for granted,” he said.
However, the progress of negotiations with the PSOE has caused a pause in the mantra that Puigdemont has clung to in recent months in the Lower House. Indeed, the deputy Josep Pagès did not hesitate to accuse the PP of having created an operation aimed at delegitimizing the “independence movement”. “What they are doing today is noise. Pure theater. They have no legal argument,” Congressman Junts told Congress last week.
At the same time, Puigdemont’s men continue to drag down the conditions they put on the table that they share with the PSOE, in which they negotiate trajectories and budgets as a whole. In addition to greater budgetary space, Junts demands the immediate, comprehensive and well-resourced transfer of commuter trains. “A global transfer in which the management is 100% Catalan through FGC, and not with a company shared with the State,” said Salvador Vergés, deputy of the formation in the Parliament Catalan.
