Spain has managed to avoid the EU’s excessive deficit procedure by committing to reduce the deficit to 3% this year (compared to a 3.6% public deficit in 2023) but has not been able to avoid the European Commission’s demands for a long list of actions, some of which have already been committed, because “deficit and debt levels remain high, requiring further measures to consolidate the fiscal position and correct risks to debt sustainability”.
Brussels urges Spain to “present in a timely manner” a medium-term fiscal and structural adjustment plan, warning that while risks to fiscal sustainability in the short term are generally low, in the medium term “they are high”. And it assures that Spain must improve its primary structural balance by around 5.6 points of GDP in the coming years (an adjustment of close to €82,000 million) to balance its accounts and “guarantee that debt is stabilised in the long term” in view of the sharp increase in spending due to the ageing of the population, both in pensions and healthcare.
With regard to pension spending, which is going from record to record month after month, Brussels estimates that it might be necessary to activate the so-called pension closure clause as early as 2025, which will mean an automatic increase in social contributions, in a context in which labour costs already grew faster than wages in 2023 “due to the increase in social contributions linked to the pension reform”.
The Commission, finally, urges Spain to undertake the promised tax reform, one of the key pieces to unlock the fifth payment of the Recovery Plan (around €7 billion), reviewing and simplifying “the tax system to support economic growth and employment, cohesion and green transition”; also urging it to “improve the quality, efficiency and equity of public spending”.
On the other hand, Brussels asks the government to speed up investments linked to European funds to prevent “incipient delays” from preventing a “continuous, rapid and effective implementation” of the Recovery and Resilience Plan. To this end, it urged the Spanish government to reinforce its “administrative capacity” to manage the European manna, a symptom of the fact that the pace of implementation of the funds does not meet the EU executive’s expectations.
