With the current budgets and without changes in economic policy, Spain is moving away from reaching its deficit objectives in the coming years, when below 3% will be mandatory. -also after the reactivation of the Stability and Growth Pact, which has been suspended since the pandemic. This is one of the conclusions of the Spanish economic forecast report prepared by the European Commission, which estimates that the deficit will be 4.1% this year, decrease to 3.2% in 2024, and rebound to 3.4% in 2025. The basis for the reduction next year is the end of the energy measures, while the rebound next year responds to the current expiration of exceptional taxes on banks and wealth, although the government announced that it will extend the rate for the rich until there is a new regional financing system.
Calviño promised to immediately send a legal text to the 27 for fiscal rules after overcoming doubts in Germany
The European Commission expects that the reduction of the deficit will slow down this year compared to the previous two. “After several quarters of strong growth, tax revenues show signs of moderation, despite the strength of personal income tax collection. The main driver of the expected moderation in 2023 is below the expected growth in indirect tax revenue, reflecting the slowdown in inflation of imported goods,” the report said. On the expenditure side, it pointed to “increasing costs” of pensions due to their update in line with the CPI as well as the package of extraordinary measures such as the reduction of VAT on basic foods worth 2,700 million euros (0.2% of GDP).
In a scenario without changes in revenue and expenditure policies due to the lack of a budget project, the calculation is that the deficit will fall to 3.2% in 2024 due to the loss of the anti-package crisis neglected by Brussels with the tax exemption of energy companies, while Pedro Sánchez announced the extension of some measures within the framework of investment.
From there, the report of the European Commission states, as the only change in economic policy, that “the impact of the budget on revenue measures, such as the tax on financial institutions or the solidarity tax on wealth, ends at the end of 2024” to continue: “The deficit is expected to increase by 3.4%.”
The analysis of the European Commission, therefore, gives indications to the Government of Spain about the consequences that may end up with two taxes, which were born, in principle, on a unique and temporary basis. Brussels did not go into which specific numbers should be implemented by each member state. But to reduce the deficit, the authorities have to play with the scheme of revenue and expenditure. If the first decrease occurs, it is necessary to look for new forms of financing or reduce costs, that is, make cuts.
Meeting the 3% deficit goal, which is the commitment of the Treasury in Brussels for 2024, becomes an urgent need starting next year, when the Stability and Growth Pact will be implemented again. The 27 are currently immersed in the negotiation of new fiscal rules to reach 3% of the deficit and 60% of the public debt in relation to GDP. The intention is to have greater flexibility for member states when establishing roadmaps for their respective fiscal corsets. In turn, it is easier for excessive deficit procedures to be initiated with the corresponding sanctions, which are more acceptable than those of the current system, which were never imposed because of their brutality.
The starting points of the negotiations are far away, and the issue is more burdened than first expected by the vice president of the economy, Nadia Calviño, who promised to have a legal text proposal in October and then for the meeting of his colleagues, but this is not possible.
After the last meeting, in which Germany’s skepticism was overcome, Calviño assured that there was an “agreement on the essential elements” and promised to send a text “in the coming days” on the acceleration, with the extraordinary meetings of the Minister of Economy, to at least the position of 27 closed in the presidency of Spain, even if the agreement with the Parliament and the Commission comes under the leadership of Belgium at the beginning of next year.
