Airef urges reform of the financial crisis stability law: "Did anyone think it could be complied with?"

MadridMore than ten years ago, in the midst of the Great Recession, the two main parties in Spain, the PSOE and the PP, agreed to a constitutional reform to accept and comply with the debt reduction demanded by Brussels from the most indebted countries. This led to the creation of a permanent constraint on public spending enshrined in the Spanish Constitution under the name of "budgetary stability," paving the way for Mariano Rajoy's (PP) government to later pass the so-called Budgetary Stability Law in 2012. All of this required public administrations to be very restrictive with spending.

"Did anyone really think we could comply [with the rule]?" asked Cristina Herrero, president of the Independent Authority for Fiscal Responsibility, at a press conference on Monday. The Independent Authority for Fiscal Responsibility (AIReF) illustrated this point as follows: since 2013, compliance with the budget stability or deficit target has only been achieved in three of the seven years it was in effect (fiscal rules were suspended in 2020 due to Covid-19 and have returned in 2024). This reflection coincided with the agency's presentation of a proposal for a "comprehensive" reform of the current Spanish fiscal framework. "We need a fiscal framework suited to the [Spanish] reality and the challenges of the economy," Herrero stated. The Fiscal Authority believes that a point of "lack of realism and credibility" has been reached, along with "problems of enforceability and even inapplicability [of fiscal rules]," as well as a "deficient integration of the decentralized reality [of the administrations within the State]."

First and foremost, they urge the adoption of the European fiscal framework that was implemented after the COVID-19 pandemic. After being suspended during the worst years of the pandemic, European fiscal rules have returned, but in a different form. Although deficit (3%) and debt (60% of GDP) targets still exist, the prevailing variable now is the spending rule, meaning that the focus is on the maximum growth that public spending by different administrations can have. However, the Stability Law makes no mention of this rule. "It should be the center of supervision. [...] This lack of coherence increases uncertainty and hinders its proper application," reflects the Independent Authority for Fiscal Responsibility (AIReF). They also believe it is necessary to redefine and make more transparent the criteria that establish the distribution of the different elements, for example, the deficit target for each administration. In this regard, the agency has reiterated the need to apply different deficit targets depending on the region.

In fact, member states must transpose the European directive before December 31, 2025, and although the Ministry of Finance intends to do so, the Independent Authority for Fiscal Responsibility (AIReF) fears they will fall short, especially if the Ministry only proposes modifications via royal decree-law, and not a reform of the Law of Deputies.

Beyond the European framework

In terms of oversight, AIReF wants its own operations to be adapted to the new European framework and its credibility, effectiveness, and implementation of preventive and corrective measures to be strengthened. It also wants not only the central government to present a structural fiscal plan, but also the 17 autonomous communities, the main municipalities, and the Social Security system to do so, in order to provide greater transparency; and for independent analyses to be carried out on forecasting errors by public administrations, and for the impact of climate change to be incorporated as a factor to be considered in the budgetary framework.