Spain’s 2024 budget plan, submitted to Brussels in mid-October by the acting government led by Pedro Sánchez, was described as aligning with European Union fiscal guidelines. The European Commission approved the budget extension on Wednesday, but cautioned that Spain faces a difficult and complex fiscal situation. Due to a public deficit, the country is expected to exceed the 3% GDP threshold in both 2024 and 2025, with public debt remaining very high at about 106% of GDP over the next two years. An updated budget plan will be required as soon as possible. (European Commission communication)
Draft budget plans for Slovakia, Spain, Luxembourg, and the Netherlands were presented by caretaker administrations, which are preparing for elections this week. Slovakia, Spain, and Luxembourg are invited to submit draft updated budget plans promptly, given the end-year General Clause framework within the autumn package of the European Semester and the annual cycle of economic policy coordination. The Stability and Growth Pact will allow Brussels to activate enforcement procedures for countries that do not present solid public accounts. (European Commission commentary)
The initiation of procedures will hinge on year-end data for 2023. At present, nine eurozone countries are expected to show budget deviations exceeding 3% of GDP. The latest autumn forecasts position Spain among a group of eleven member states, alongside Italy, France, Germany, the Netherlands, and Hungary, where extreme macroeconomic imbalances will be reviewed anew by Brussels. (European Commission assessment)
Reliable tax strategy
The tax situation in Spain remains intricate. Implementing a reliable tax strategy will be essential. Forecasts from the Community Administration referenced a budget plan prepared without changing economic policy, reflecting the government’s situation until late October and considering measures announced only through October. Analysts noted that the assessment did not account for the impact of the latest government announcements, such as the extension of certain energy measures or the reduction of VAT on food, which was set to expire at the end of 2023. (European Commission notes)
The fiscal measures included were to be finalized by the end of October. It remains necessary to determine the exact measures to be adopted to bring greater clarity. Currently, the budget aligns with recommendations, but the core message from community management sources is that the underlying financial situation is challenging, while the plan remains consistent with the financial benchmark. (Community management briefing)
Energy support measures
Overall, Brussels’ assessment indicates that many draft budgets plan prudent fiscal steps, anticipate withdrawing energy support in 2023 and 2024, and use savings from these changes to reduce the deficit. Yet some member states are not sufficiently capping growth in nationally financed net primary expenditure, and others are not moving quickly enough to phase out energy support. Brussels has repeatedly urged using these savings to shrink the deficit, while ensuring investments remain protected at the national level. (Brussels briefing)
In Spain’s case, as well as Cyprus, Estonia, Greece, Ireland, Slovenia, and Lithuania, a number of countries are following the proposed path. Conversely, Austria, Germany, Italy, Luxembourg, Latvia, Malta, the Netherlands, Portugal, and Slovakia face potential risks of not fully implementing Ecofin recommendations, which could necessitate additional measures. Despite the eurozone’s push to phase out energy support, substantial measures will remain in force in 2024 in six countries, including France, Croatia, Luxembourg, Malta, Germany, and Portugal, and Brussels is urging Germany, Malta, and Portugal to lift these measures as soon as possible. (Ecofin notes)
Brussels plans to present its views to Eurozone economic and finance ministers at the December Eurogroup meeting and aims for a detailed discussion in January. The European Council is expected to endorse budget plans by mid-March. (European Council briefing)