In the Valencian Community, this year is expected to again be among the regions with the highest structural deficits, facing ongoing tensions in public accounts. The Independent Authority for Fiscal Responsibility (Airef) projects that the Generalitat will finish the year with a deficit around 1.5%. This stands well above the reference 0.3% to 0.4% range used for the regional governments group in Airef’s 2023 Budget Implementation, Public Debt and Expenditure Rule Report.
Consequently, the Community ranks as the second most deficit-prone autonomía, surpassed only by Murcia, where Airef anticipates a deficit near 1.6%. There is some consolation in the fact that this figure is notably better than 2022, when the Consell ended with a deficit of 3.1% of GDP.
After reviewing its initial projections, Airef indicates that seven autonomies are likely to balance their budgets or post a small surplus. These include Andalusia, Asturias, the Balearic Islands, the Canary Islands, Galicia, Navarra and the Basque Country. Six other communities (Aragón, Cantabria, Castilla y León, Extremadura, Madrid and La Rioja) are listed in Airef’s Stabilization Programme estimates; under the current pattern, only four among these could end the year with a higher deficit.
Along with the Community of Murcia, Valencia is part of a group where the deficits range from slightly negative to moderate. The group also features Catalonia at around -0.7% and Castilla-La Mancha at about -0.9%.
inconsistencies
Airef’s projections continue to diverge from the Generalitat’s own forecast, which maintains a much smaller deficit of roughly 0.3%. According to Airef, the Generalitat would need additional resources from the State to address underfunding under the current regional financing system, a factor the supervisory body says it did not adequately account for.
Under Airef’s calculations, the Generalitat’s resources this year would amount to about 15.8% of GDP for the autonomous community, regardless of funds from the Recovery, Transformation and Resilience Plan (PRTR). Airef also notes that additional resources from the national government could come through reduced collections for Inheritance and Gift Taxes and for Documents of Legal Transactions, given a more moderate real estate market. The Generalitat’s own tax intake remains strongest in this sector.
It also considers the impact of the shopping cart bonus approved in spring to assist the most vulnerable families facing rising food prices, a measure Airef estimates at around 30 million euros.
On the other hand, Airef points out that up to 2022, 86% of REACT-EU funds—amounting to 1,254 million euros—were allocated to the Valencian autonomous community. It predicts that the Recovery Plan, financed with European funds, will have an impact equivalent to 0.7% of the region’s GDP this year.
Debt
Putting all factors together, the financial oversight body suggests the Valencian Community will again close the year with the largest debt burden relative to GDP among neighboring regions. Specifically, public debt is projected to stand at about 43.9% of the region’s GDP, ahead of Castile-La Mancha at around 33%, Murcia at roughly 31.9%, and Catalonia at about 31.8%.
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Meanwhile, the least indebted autonomies appear to be Navarra and the Canary Islands. The Basque Country shows an estimated burden of around 11.4% to 11.5% of GDP, aligned with their relatively lower debt levels.
Airef notes that the liquidation of the regional financing system for the fiscal year 2022 temporarily increases resources for Valencia and other regions in the following year. In this context, Airef warns the future regional manager against the temptation to raise spending or rely on permanent reductions in income. Such reliance on temporary revenues could widen imbalances in public accounts in years ahead.