The Government of Spain confirms to Brussels that it will comply with the spending path in 2024

Headquarters of the European Commission in Brussels, Belgium (Pool EU Council)

The Government has submitted to the European Commission the Annual Progress Report on the implementation of the fiscal and economic policy commitments included in the Medium-Term Fiscal and Structural Plan presented in October 2024, which is the main medium-term fiscal planning document. The report also includes an update of the macroeconomic scenario with growth forecasts up to 2028.

As established by the new European framework, countries must submit an Annual Progress Report by 30 April each year detailing the degree of progress on the net spending path set by the Council, as well as reform and investment commitments.

The report also includes the evolution of the macroeconomic situation and the outlook for the coming years, with an update of the macroeconomic scenario from 2025 to 2028.

Spain will continue to lead economic growth among the main European economies

The document sets out the macroeconomic scenario up to 2028, based on the latest available data, which highlights the solid evolution of the Spanish economy in a complex international scenario.

Spain will continue to lead economic growth among the main European economies in 2025 and 2026, after ending last year with a 3.2% increase in GDP, around four times the average for the euro area, a differential growth that continues in the first quarter of 2025.

As a result, the GDP growth forecast is maintained at 2.6% in 2025 and 2.2% in 2026, thanks to the dynamism of the Spanish economy, despite the impact and uncertainty of tariffs. The tariff impact analysis incorporated in the macroeconomic scenario includes a central scenario with an impact in 2025 of 1 tenth of GDP.

The Spanish economy will maintain positive growth in these years, with Gross Domestic Product expected to grow by more than 2% over the entire forecast horizon.

This high dynamism will be supported by the strong performance of the labour market, with job creation of almost 2 million people up to 2028, as well as a sustained increase in productivity per employee.

The positive developments in the labour market, together with the expected growth in employee salaries, the deceleration of inflation and the financial strength of households, will further improve the purchasing power of citizens.

This will also help to maintain a positive evolution of private consumption which, together with the acceleration of investment in the coming years, will allow sustained and balanced growth to be maintained.

Compliance with the spending rule

The data in the report shows that Spain complied with the spending rule committed to the European Commission for 2024. Specifically, net primary spending, or computable spending, grew 4.1% in Spain in 2024, below the 5.3% set out in the Fiscal-Structural Plan presented to Brussels, which also allows Spain to comply with the EU Council Recommendation of 21 January.

This difference is equivalent to some 7.3 billion euros (0.5% of GDP), which, in accordance with the new European fiscal rules, will be recorded as a "credit" in favour of Spain in the so-called "control account", and will serve to offset possible future deviations from the spending rule.

It should be remembered that under the new tax rules, the key variable taken into account by the European Commission in assessing a Member State's compliance with the Fiscal Plan is its eligible spending.

Therefore, Spain complied with the spending rule comfortably and this allows for a greater margin for the coming years. In fact, computable spending in 2025 is forecast to increase 4.1%. This implies that the cumulative growth in the period 2024-2025 of this eligible spending will be 8.4%, below the 9.2% set by the European Commission for those years in its Recommendation, which means meeting the targets set.

Deficit reduction

On the other hand, the document highlights that Spain met and even improved its deficit target for the fifth consecutive year in 2024. It ended last year with a deficit of 2.8% of GDP, 0.7 percentage points lower than in 2023 and below the 3% target.

The reduction of the deficit is based on solid growth in the Spanish economy, which has become one of the EU's driving forces. It is also due to the dynamism of the labour market with record employment figures.

The declining path of the deficit shows the rapid consolidation of public finances. Since the peak of the pandemic in 2020 at 9.9% of GDP, the public deficit has reduced by more than seven percentage points, which is 70% less. Specifically, the deficit has fallen by almost 70 billion euros and it has done so without implementing social cuts.

In any case, the deficit of 2.8% in 2024 includes the negative impact of court rulings amounting to 11.269 billion euros, of which more than 8 billion euros correspond to 'one-offs', i.e. they only have a negative impact in that year and not in future years.

DANA impact

Taking into account the spending to mitigate the effects of the DANA, which mainly affected municipalities in Valencia, the deficit in 2024 is 3.2%. In other words, the impact of the measures adopted reached 5.59 billion euros (0.35% of GDP) in just two months, given that the natural disaster occurred at the end of October. Of this amount, the Central Government has assumed 93% of the cost, i.e. 5.186 billion euros.

In any case, fiscal rules allow budgetary impacts arising from natural disasters to be excluded from the deficit, as was the case with the Lorca earthquake. Therefore, for the purposes of the fiscal rules, the 2024 deficit was set at 2.8%.

Progress on reforms and investments

Finally, the document sets out the progress on reforms and investments included in the Fiscal Plan for the extension of the adjustment period up to seven years.

This reform programme is built around the main measures included in the Recovery, Transformation and Resilience Plan, to which additional measures were added, focused on new policy challenges, reinforcing the commitment to fiscal sustainability and economic growth.

In this regard, the document reports on the degree of implementation of several Recovery Plan milestones related to taxation. In particular, it recalls that the approval of the Law on the fight against tax fraud or the tax reform has already been fulfilled with the approval of the last package of tax measures at the end of 2024.

These measures included the Supplementary Tax, to set a minimum overall rate of 15% for large multinationals in line with OECD Pillar 2. Also the creation of the new tax on banking or electronic cigarettes, among others. The aim of these measures is to move towards a more progressive tax system that benefits the social majority of the country, especially middle and low income earners, as well as SMEs and the self-employed.

Non official translation