The autonomous communities will close this year with a deficit of 0.8% of GDP, above the forecast of the Government and Airef (0.6%) and the objective sent to Brussels, according to Fedea estimates. The greater budget gap (more expenses than income) questions the fulfillment of the Government’s deficit reduction path, according to Fedea.
The research service estimates that there will be enormous dispersion among the common regime communities. While for Valencia the budget gap will be 2.3% of GDP, in Asturias a surplus of 0.2% is expected. In Catalonia, Fedea believes that this year expenses will exceed income by the equivalent of 1.2% of GDP. The reference rate that was sent to Brussels in the 2023-26 Stability Program was 0.3%, although the Government later raised it in the Budget Plan to 0.6%. The final figure will be the aforementioned 0.8%, according to Fedea estimates.
The report warns that this deviation “is not good news” and cites two fundamental reasons. The first is because the reduction in the deficit compared to the previous year will be only 0.3%. And the second because the “deviation is produced by the strong growth in spending, particularly public consumption and, therefore, we think that there will be a structural deterioration.”
Fedea adds that the higher expected deficit “would put at risk the reduction path” announced by the Government. Furthermore, this increase occurs on the verge of the return of European fiscal rules, which are expected to begin in 2024. “We believe that the fiscal consolidation of all public administrations in Spain cannot be delayed any longer and should be one of the main tasks that the future Government of Spain must face,” adds the think tank.
The Airef estimates – like the Government – ??that the deficit would be 0.6%. Fedea believes that these forecasts will fall short because “both organizations have just revised their forecasts upwards” in the month of October.
For next year, the Government will allow a deficit of 0.1% to the communities, which would imply a strong adjustment with respect to the figure with which they could close this year. Although initially the Executive anticipated a balanced budget, in the end they gave one tenth to the communities.
In any case the deficit will be less than 1.1%, with which it closed last year. Regarding 2022, “the improvement is due to an increase in resources subject to payments on account and settlement of the regional financing system,” according to Fedea. In recent years, personal income tax and VAT collection has grown significantly thanks, in part, to runaway inflation. This increase reaches the communities through advances from the Government and through the settlement that is made after two years. Therefore, strong growth in community income is expected in the coming years.
The acting Executive transferred to Brussels on October 15 the Budget Plan that would reduce the deficit in 2023 to 3.9%, and then lower it in 2024 to the 3% established by the fiscal rules.
