The Diplomat
The European Commission yesterday recommended Spain to reduce public spending in order to achieve the 0.7% structural deficit cut demanded by Brussels for this same fiscal year and to withdraw from the end of 2023, for total elimination in 2024, the aid granted to tackle the energy crisis (e.g. VAT reductions on gas and electricity), which, in its opinion, currently account for 0.6% of GDP.
The Commission made public yesterday an indicative plan for the Member States within the framework of the 2023 European Semester spring package and presented a report on the performance of 16 EU countries in order to assess whether they comply with the deficit and debt targets. According to the document, Spain is among those that do not meet them, along with Belgium, Bulgaria, Czech Republic, Germany, Estonia, France, Italy, Latvia, Hungary, Malta, Poland, Slovenia and Slovakia.
Therefore, in its fiscal policy recommendations for the preparation of next year’s budget, the Commission believes Spain should limit the increase in primary public spending to a maximum of 2.6% in 2024. In any case, the Community Executive considers that Spain will comply with this recommendation because, according to its own Spring macroeconomic forecasts (published earlier this month), the increase in primary expenditure in our country will be 1.4% in 2024. In addition, the Commission also recalls that the Stability Program sent to it by the Government foresees that, in 2024, the public deficit will be reduced to 3% of GDP, “in line” with its own projections, which place it at 3.3%.
In this regard, the Ministry of Economic Affairs yesterday welcomed the Commission’s report, which “confirms that the fiscal path presented by Spain will comply with the fiscal requirements demanded for 2024”, and assured that “the Government’s fiscal responsibility and the growth forecasts of the Spanish economy guarantee the sustainability of the public accounts in the coming years”. Likewise, the Government predicted that Spain will leave the group of countries with economic imbalances.
On the other hand, the European Commission yesterday suggested Spain to maintain the levels of public investment and to guarantee the “absorption” of aid from the recovery fund and funds from other EU programs. It also urged the Government to “maintain the momentum” for a “rapid” implementation of the Spanish recovery plan and to present soon the update of this plan in order to have access to another 10 billion euros in direct aid and to the 84 billion in credits allocated to Spain.
Support for energy
As for the fiscal recommendations, the Commission yesterday recommended that Spain begin the gradual phasing out of energy support measures, which it currently estimates at 0.6% of GDP, starting with the most universal measures, such as the VAT reductions for gas and electricity, which have been extended until the end of the year. The Community Executive expects Spain to reduce these subsidies from the end of this year onwards, with a view to their total elimination next year. It also proposes that the Government use the “savings” derived from this gradual elimination of the measures to “reduce the public deficit and limit spending”.
In the opinion of Brussels, in the event that energy prices soar again and new measures are necessary, these must be “assumable” from the fiscal point of view, “preserve the incentives to achieve energy savings” and be aimed at protecting “vulnerable” households and companies. The Commission also considers that Spain should continue to reduce the use of fossil fuels and accelerate the deployment of renewable energies, as well as promote energy efficiency in households through the renovation and electrification of buildings.
