After the approval of a new European Stability and Growth Pact last April and the return to budgetary rules, the European Commission opened excessive deficit procedures last June (first stage of a sanctions file) to countries which exceed the threshold of 3% deficit on GDP in 2023. It included France, Italy, Belgium, Hungary, Malta, Poland and Slovakia in this file, but exempted Spain. A decision that The European tax administration has criticized and considers it “discretionary” considering that its deficit amounts to 3.6%.
The European Fiscal Council, a sort of community tax authority with a role similar to the AIReF, judged this Wednesday that the decisions of the Community Executive on excessive deficit procedures pose a problem. “consistency issues” both by the period to which it applies and by the Member States concerned. “In June 2024, the Commission proposed opening excessive deficit procedures to seven Member States based on the 2023 results. Spain was spared despite a deficit of 3.6% of GDP in 2023, well at -above 3% of GDP”, underlines the European Commission. the tax administration in its annual report published this Wednesday.
The report shows the “discretionary power” of such a decision. The Commission has explicitly stated that The double condition was not met. In similar situations in the past, the report observes, the community executive would send a proposal to the Council of the EU to determine whether the parameters for applying the excessive deficit procedure are respected.
But this time, the European Commission circumvented this procedure by arguing that an excessive deficit procedure would, at this stage, be of no use, recalls the tax administration. Brussels referred to its own economic forecasts, who stressed that the deficit would be reduced to 3% in 2024, which, according to Commission forecasts, would be achieved without new tax measures.
“This element of discretion which does not appear in the relevant legal provisions”underlines the Airef community in its analysis. Furthermore, he warns that, for the first time, Brussels has divided the proposal to the Council on the existence of an excessive deficit procedure and the proposal on how to correct it. “This poses significant challenges and should not set a precedent for the future.”
The community executive will reassess the situation in the fall of this year. The report did not provide “a comprehensive assessment as to whether the Member States meet the debt criterion, due to the absence of a net spending trajectory which will only be available when medium-term fiscal structural plans have been agreed,” explains the tax administration.
It should be recalled that last July, the European Fiscal Council asked the highly indebted countries, among them Spain, to carry out an “additional budgetary adjustment”, that is to say to adopt a restrictive budgetary policy taking advantage of the favorable economic conditions and the dynamics of the recovery plans.
“Member States with high debt levels, such as Belgium, Greece, Spain, France and Italy, which according to the latest information from the Commission (11 countries) are classified as high to medium risk long term, should take advantage of the opportunity to make an additional effort to reduce their budget deficits”, notes their analysis.
