The government insists on basing the 2025 budget project on the record spending ceiling of 199.171 million euros, which – with the path to stability – did not obtain the approval of Congress a month and a half ago. However, the ambitious approach of the executive is colliding with the financial demands that the fiscal pact reached with the ERC will require in exchange for the investiture of Salvador Illa. The transfer of 100% of taxes to the Generalitat will require the State to apply a 17.8% reduction in public spending in the most extreme scenario, according to Fedea’s calculations. In cases where the transfer of powers is less, the adjustment of public spending will never fall below 5.34% per year. In any case, the Catalan commitment threatens to harm the level of budget execution, in the event that Pedro Sánchez manages to promote the budgetary path and – later – advance the accounts for 2025 in the Lower House.
The president could, however, compensate his Catalan counterpart through a extraordinary increase in incomeforcing an increase in the state income tax bracket of 49.16%. The impact would be less if the head of the executive manages to smooth out the budget agreement. According to estimates by Fedea director Ángel de la Fuente, a transfer of 60% of taxes to Catalonia would require a reduction in spending of 10.68% or an increase in income tax of 29.50%.
Added to this is the cost of the network of commitments that the president has had with the independentists since November 2023. Among them, the reduction of Catalonia’s debt to the State contracted through the Autonomous Liquidity Fund (FLA), and which will subtract 15 billion euros from the income of the Central Administration. The bill could exceed 35 billion, in the event that the government decides to cancel the debts of the rest of the indebted regions, something that already seems excluded, after the refusal of the popular barons to take advantage of the mechanism.
This is not the only obligation that awaits at the gates of Moncloa. The global transfer of the railway services of Rodalies to Governmentwill swallow up an additional 500 million euros. A complex puzzle that – moreover – must convince the European Commission, which is still waiting for the document reflecting the commitment to spending that guarantees compliance with European rules.
It is worth remembering that the President of the Government announced a few days ago that he was preparing a tax increase “for those who have money in the bank to live a hundred lives”. The Ministry of Finance still does not specify through which figures this increase in the tax burden on the highest incomes is being prepared, which should accompany the budget project, which the first vice-president, María Jesús Montero, could present to the Congress of Deputies during the first weeks of next October, with the intention of promoting it before December 31.
The State alone assumes the budgetary adjustment
In addition, the proposed stability path for the next three years will also compromise public spending. In this document, the State commits to giving greater budgetary margin to the Autonomous Communities and City Councils, and to assume alone all the adjustment of the deficit necessary to reduce it to 2.5% in 2025, to 2.1% a year later, and to 1. 8% in 2027. According to the Ministry of Finance, the Central Administration must undertake a reduction of 0.8% of GDP in the imbalance in the accounts over the next three years.
The effort could be greater if we look at the budgetary discipline forecasts published by AIReF. The organization predicts that the autonomous communities will close 2024 with a deficit of 0.3%, two tenths above the stability objectives set for this year. An imbalance in the accounts that will have an impact of 3 billion euros, and that will also have to be compensated by the State. In fact, the high deficit suffered by regions such as the Valencian Community or the Region of Murcia threatens to continue destabilizing the budgetary objectives set for the coming years.
Everything will depend on what happens in the Congress of Deputies. The path to stability that the Executive intends to take in the week-long plenary session does not have – yet – the necessary support to move forward. Junts, which abandoned these objectives on July 23, demanded that the Ministry of Finance increase the fiscal margin of the autonomies even more to change their vote. However, the first vice-president decided to maintain the figures that failed a month and a half ago.
“The Government will present the budgets, either with the trajectory approved today or with the current trajectory,” said María Jesús Montero, at the press conference that followed the Council of Ministers in which the budget plans were revalidated. Although everything depends on Carles Puigdemont’s team, Moncloa today tried to transfer all the pressure to Alberto Núñez Feijóo’s team. “If the Popular Party and other groups vote against this path and it is rejected, they will force the LACC to make an adjustment of 6.6 billion euros and 4.950 million to the City Councils,” warned the head of the Treasury, who criticized the popular leader, that his barons abstained in the first vote on the path to stability that took place in the Fiscal and Financial Policy Council (CPFF) on July 15.
