The Independent Authority for Fiscal Responsibility (Airef) will remain vigilant over the application to Spain of the new European framework that is being finalized in Brussels. The organization chaired by Cristina Herrero yesterday published its activity plan for the coming months, in which its priority is clear: 2024 is a key year for fiscal policy due to the return of the new rules and, therefore, its work will consist in “special attention” to the supervision of the public accounts of all administrations to guarantee their sustainability in the medium and long term.
The Tax Authority detailed in its roadmap that, during the current year, it will “carry out the necessary tax supervision tasks” through a specific opinion on the reform of the community framework and its implication in the Spanish sphere. While waiting to know the final translation of the rules, which are intended to be more flexible but maintain the ceiling of 3% deficit over GDP and 60% debt, the independent body announced that when they are known precisely it will provide a specific analysis with a view to the transposition of the future directive.
The fiscal supervisor has been insisting for several months that public debt will continue to grow worryingly if the necessary measures are not adopted to curb it. In its last observatory, last September, Airef positively assessed the reduction in the debt-to-GDP ratio to 111.2% in the second quarter of 2023, which represented a reduction of four tenths compared to the end of 2022. But he also warned that the data represented an increase of 13 points compared to the pre-pandemic level. In monetary terms, public debt continues to grow until reaching 1,582 trillion in January, the historical maximum, according to the latest data from the Bank of Spain.
On the other hand, the President of the Government, Pedro Sánchez, yesterday during the control session in Congress announced a gap in public administrations of 3.7% of GDP at the end of 2023, which would mean two tenths less compared to the scenario that The Executive transferred to the European Commission. Treasury sources explain that this reduction of more than 3,000 million in the deficit has been possible thanks to the improvement of the economy and the increase in collection, which continued to grow last year. The public deficit was 4.8% at the end of 2022 and the objective that the Government has set is for it to fall to 3% at the end of this year, which will not be easy. However, this better result in 2023 can help meet this goal.
Two organizations such as the Bank of Spain and Airef question whether 2024 can be closed with this 3%. The Bank of Spain warned last week that, in the absence of new adjustment measures, the administrations’ deficit could reach 3.5% by the end of the year. For its part, Airef warned in December that to meet the 3% objective it would have been necessary not to extend some of the tax credits that have been in force since the outbreak of the war in Ukraine. But, the Government did extend some of the aid, such as the reduction in VAT on food until June, or moderated reductions in energy taxes.
Regarding the absence of general State budgets for 2024, the Fiscal Authority plans to prepare a specific report on the consequences of the budget extension on public finances.
The Airef also insisted to the Government on the need to present a five-year fiscal consolidation plan, extendable to seven, for all public administrations. Today it does not exist. In this sense, Cristina Herrero herself demanded that the Ministry of Finance develop “a realistic and credible fiscal strategy.”
The Tax Authority noted yesterday that “it will strengthen its medium and long-term analyzes and its implications for the sustainability of public finances.” During this year, work will begin on the second opinion on the long-term sustainability of public administrations and on the report on the pension spending rule, which will be published in 2025.