Expenditure ceiling

Spanish government to approve "expansive" expenditure ceiling

Council of Ministers gives green light to expenditure ceiling, the first step towards drawing up the general state budget

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The Minister of Finance , María Jesús Montero, this week.

"The spending ceiling will anticipate the most expansive budgets in the country's history", stated the Minister of Employment, Yolanda Díaz, on Monday. The words of the second vice-president are not only a déjà-vu of the discourse that has prevailed since the pandemic began, but anticipate another record expenditure ceiling which the Council of Ministers plans to approve this Tuesday. This is a fundamental step in drawing up the general state budgets for 2021, which the two partners in the coalition government, PSOE and Unidas Podemos, will begin to negotiate this week. "They will be public accounts to solve the problems the social majority of the country has," insisted Diaz.

The pandemic put an end to the austerity that began with the economic crisis of 2008. That's why the government has finalized an "expansive" limit on government spending. The spending ceiling the Spanish government approved a year ago was increased to €196bn, up 53.7% compared to the spending limit in place when Sánchez took over. In fact, the final figure was not close to the central government's original pre-pandemic forecasts, which put the spending limit at €127.6bn.

The spending ceiling is the maximum amount that can be spent in a year by all public administrations in the state. This includes the Spanish government and other state institutions, but also autonomous communities and local authorities (municipalities, county councils, and others). The expansion of the spending ceiling is above all thanks to the incorporation of part of the European funds. A year ago the funds accounted for more than €27bn of the total spending ceiling. For now, the Ministry of Finance has not yet made public the figure for this year, but it is not expected to be less than €20bn, since the estimate is to receive €75bn between 2021 and 2023, provided that Spain meets its commitments to reforms agreed with the EU.

No fiscal rules

This spending ceiling will be approved again in a context of suspension of fiscal limits as a result of the extension of the safeguard clause in the EU and the suspension of the European stability pact until 2022, with the idea that it will be reactivated in 2023. For this reason, it has been a year since Spain suspended its fiscal rules and, therefore, its deficit, debt and spending targets. This means that the administrations will not have to worry about containing its spending and, in fact, after the suspension of these rules the law of budgetary stability will not be passed, as sources from the Ministry of Finance have confirmed to ARA. This would impose spending limits on all administrations; instead, the Ministry of Finance will merely send guidelines, which it hopes will move authorities to spend "responsibly".