On October 15, Spain presented its budget plan for the year 2024, an exercise required by European economic governance, although it is known that, at the moment, there is no specific forecast for the formation of a new government and that, of course, a repeat election cannot yet be ruled out. In any case, Spain thus fulfills its obligations in terms of budgetary responsibility and, in this way, offers an in-depth analysis of the situation and prospects of the Spanish economy and public accounts.
It should be noted that 2024 is the year in which, after many years, the European Union tax rules and, with them, the excessive deficit procedure, a mechanism in which strengthened surveillance is carried out in countries with a public deficit of more than 3% of GDP, a situation in which Spain has found itself since 2020, due to the fiscal effort made to combat the impact of the pandemic crisis and the subsequent recovery, crossed by the war in Ukraine and the successive support packages put in place since then until, in view, December 2023. This means that Spain must apply itself to the terms of fiscal adjustment that have a sufficient path to fiscal consolidation. solvent enough to maintain the confidence of investors and institutions in our economy.
The cyclical impulse of the last three years has allowed, along with the inflation, a very positive rate of reduction of public debt and public deficit, from having a public debt close to 120% of GDP in 2021 to, if the predictions offered by the government come true, in 106% in 2024. The fact is that the cycle momentum, which has done a lot to maintain this rhythm of debt reduction but also to maintain employment growth, will be significantly reduced in 2024 and beyond, so we do not expect much economic growth beyond the next twelve months. However, Spain predicts a growth of 2.4% in 2023 GDP, above the average of the European Union and above the initial forecasts of the government in autumn 2022 (and also, why not remember, most of the analysts’ forecasts). The data from the last two quarters point to a sharp slowdown after the summer, but, nevertheless, the global figure will continue at these magnitudes, arriving in 2024 with a visible improvement in 2% of GDP.
With this economic cycle slowdown, which in the case of our country has experienced extraordinary stability in the face of the situation created by the war in Ukraine, fiscal discipline must again come first. Spain has already announced the end of the support measures implemented in the framework of the fight against the effects of inflation, with the reduction of indirect taxes, subsidies, and bonuses implemented since March 2022. In principle, the withdrawal of support measures It requires the withdrawal of some unusual taxes that have been put in place, such as the tax on extraordinary profits for banks, although this issue is precisely the subject of negotiations to establish a new government. In any case, Spain plans to increase its public revenue from 41.9% of GDP in 2023 to 42% in 2024, taking advantage of the growth spurt that we will still enjoy in 2024. In terms of spending, a A reduction of eight tenths is expected, from 45.8% in 2023 to 45% in 2024, a reduction that will focus on the wages of public employees and the withdrawal of public support in the face of inflation, focusing on those social transfers and subsidies.
It is expected that 2024 will be the last year of the bullish cycle that began in the second half of 2020, when the first rebound occurred after the spring break of the pandemic. From now on, it should be seen in Spain how its growth fits the conditions of the structure, which shows very low growth in the medium and long term, thus affecting the ability of economic growth to contribute to the balancing of our public accounts. The large structural deficit, which is more than 4%, shows that the mere evolution of income and expenses under the economic cycle is not enough to maintain fiscal consolidation, so sooner or later we will have to make changes again, something that will almost certainly be pointed out in the report that the European Commission is due in the coming days. We need to rethink what kind of country we want to be—a country that can mobilize and invest 42% of our GDP in public spending or a country that is content to collect and spend 38%—a magic number where the reference standards of the People’s Party These four points of GDP have, until now, marked the difference between each other in terms of expenses and income. It is a shame that, once again, we have skipped the tax reform document created by the commission ordered for this purpose, because the Tax Reform What we need cannot be achieved through patches.
While all this was happening, Spain had to move on fiscal discipline enough to ensure that we reach the goal of putting the 2024 public deficit at 3%, and it is necessary to speed up the implementation of Fondos Next Generation, which remains to be implemented, including the new addendum, to once again increase the potential growth of our economy through investments and reforms that remain pending. This is no small task.
