The Fiscal Authority (Airef) has today warned the acting Government that approving new anti-inflation measures on January 1 will cause Spain to fail to meet its deficit target, which is set for 3% of GDP next year. The tax cuts in force, both those affecting energy and basic foods, represent an annual cost of 4,895 million, so extending or reforming them when they expire at the end of the year would lead to a gap in public accounts.
The Independent Authority for Fiscal Responsibility today released its report on the Budget Plan sent to Brussels a few days ago. The regulator chaired by Cristina Herrero considers the deficit reduction path for next year credible as long as the aforementioned tax cuts disappear “and territorial administrations contain spending increases.” Airef estimates that the deficit will close in 2023 at around 4.1%.
With this evolution of the deficit, Airef projects a decrease in the debt-to-GDP ratio of 5.3 points in the next two years, although it emphasizes that this reduction is essentially motivated by the growth of nominal GDP. In concrete figures, the debt would close at 106.3% of GDP in 2024
The Spanish economy will suffer a slowdown in the coming months, warns Airef. Specifically, it lowers growth for 2024 by three tenths, to 1.7% of GDP. The independent body has highlighted that the evolution of public finances will be conditioned by the existing “institutional and economic uncertainty”.
However, Cristina Herrero's team highlights that the national economy is showing “greater resilience” than the rest of the surrounding countries, both in 2022 and in the first nine months of the year. This is due, in his opinion, to less exposure to disruptions in value chains, the energy crisis and, more recently, the weakening of China. Airef warns that in the medium term the tightening of financing conditions, the deterioration of household and business confidence and the weakness of economic growth in the euro area point to this slowdown in growth.
In the medium term, Airef projects an increase in the deficit to 3.2% of GDP in 2025 due to the withdrawal of temporary measures to increase income, a figure that would stabilize until 2028 in the absence of additional measures. This forecast, however, does not include the impact of taxes on energy and banking or that of large fortunes, which PSOE and Sumar intend to modify and maintain beyond 2024, figures that could help to place the deficit at 3%. .
According to Airef calculations, the fiscal adjustment that Spain would have to make to comply with future fiscal rules would involve measures worth 0.64 points of GDP per year between 2025 and 2028, which is equivalent to 38 billion.
