The State is proposing a budget for 2026 with soaring spending and revenues.

MadridThe Spanish government will propose a national budget for 2026 – the 2023 budget remains in effect – with skyrocketing spending and revenue. Despite the difficulty of passing it in the Congress of Deputies after... Together they have broken off their relationship with the PSOEThe First Vice President and Minister of Finance, María Jesús Montero, intends to fight these budgets and, for the moment, has already taken a step forward with the approval of the spending ceiling and the stability path. "These will be expansionary and responsible budgets," Montero anticipated at a press conference this Tuesday. Specifically, the Council of Ministers has approved a record spending ceiling (the maximum amount that all public administrations in the State can spend in a year): 212.026 billion euros without European funds. With the arrival of the final funds from this windfall approved for Covid-19 – which must be spent by 2026 – the spending ceiling jumps to 216.177 billion euros. This spending cap is 8.5% higher than the 2025 limit (€195.353 billion), which never materialized due to a lack of political agreement and the snap election in Catalonia. "This spending cap bears the DNA of a progressive government," Montero stated. Following this increase in the spending cap, the Treasury projects skyrocketing tax revenues. Specifically, Montero anticipated that she estimates revenues exceeding €325 billion for 2025. "And in 2026 they will increase by 8.5%," she asserted. Part of this revenue growth is explained by the inflationary context (most organizations estimateaverage inflation above 2% for 2015 and slightly below 2026). This, for example, will be noticeable in the revenue from personal income tax, which makes up the bulk of the resources entering the public coffers. However, the Treasury also links this to the strong performance of the Spanish economy while cooling down the possibility of raising taxes. "The increase in resources will not require any action that necessitates a law [...] many tax categories have the capacity to grow," Montero stated.

An "attractive" budget

"These will be attractive budgets with a spending cap that will allow for the consolidation of social programs [...] Some political parties think they can reject them without justification, but they will have to explain why they don't want more investment in health policies, scholarships..." Montero reiterated, assuring that the government of Pedro Sánchez...

The Treasury intends to present and approve a draft state budget in the first quarter of next year, most likely in mid-February, according to Treasury sources. This will coincide with the parliamentary process for the cancellation of regional debt and the presentation of the regional financing model. But this agenda is not a cause for concern for the Treasury.

Among the major budget items that the Spanish government will have to address next year is the increase in pensions, which will be revalued again in line with the average inflation rate of 2025. In fact, until 2050, this item is expected to grow only gradually as a result of the retirement of the younger generation. baby boomAlso, an increase in public sector salaries. And finally, a commitment to spend more on defense. With the budget extended, Pedro Sánchez's government has opted for alternative means, primarily credit transfers, to meet its NATO commitment to reach 2% of GDP in defense spending by 2025.

Deficit and debt reduction

Before that, however, the stability path (deficit targets, debt, and spending rule) for the 2026-2028 period, also approved this Tuesday, must go to the Congress of Deputies. The intention is for the parliamentary process to begin and end this December. However, this path is doomed from the start, given the position of the People's Party (PP) and Together for Catalonia (Junts). The reason is that, from the outset, they do not approve of the deficit target set for the autonomous communities, which is the same as the one for 2024, when it already went off the rails: a deficit target of 0.1% of GDP in 2026, as detailed this Monday in the within the framework of a Fiscal Policy Council overshadowed by the future model of regional financingThat is why the possibility of securing enough votes for a new budget is, right now, practically nil.

Should the current path be rejected twice, Montero will accept the proposal incorporated into the Structural Fiscal Plan sent to Brussels. From there, the process of drafting a new budget will begin. Government sources are optimistic and "do not rule out" that Junts will change its mind. In fact, these same sources believe that if Carles Puigdemont can return, it could open a "window of opportunity" to approve the budget.

For all public administrations, the Treasury proposes a deficit target of 2.1% of GDP in 2026, which would allow the State to comply with fiscal rules. By 2028, the State's public deficit would fall to 1.8% of GDP. By subsector, the central government is expected to close next year with a public deficit of 1.8% of GDP; local councils with a balanced budget (0.0% of GDP), while the Social Security system is projected to have a deficit of 0.2% of GDP. "I hope that when the stability plan is voted on in the Congress of Deputies, the political groups will rise to the occasion," Montero reiterated. Regarding debt, the Treasury forecasts that it will reach 100.9% of GDP next year and gradually decrease until it falls below the psychological threshold of three digits, reaching 99% of GDP by 2028. With these figures on the table, the Spanish government is boasting of its "commitment to fiscal responsibility." In fact, Pedro Sánchez's government has always advocated a balance between public spending and the gradual reduction of the deficit and debt.

New macroeconomic framework

The Council of Ministers on Tuesday also approved a new macroeconomic framework, which will form the basis of the budget. Regarding GDP growth (the indicator that measures a territory's economic activity) for 2025, the government has raised its forecast to 2.9%, as detailed by the Minister of Economy, Carlos Cuerpo, at a press conference following the Council of Ministers meeting. This represents an upward revision of two-tenths of a percentage point compared to the last forecast in September, and also aligns with the European Commission's forecast from Monday. "Spain continues to grow strongly," stated Cuerpo, who asserted that this translates into "an improvement in citizens' income, but also a reduction in inequality and poverty." In fact, for the first time, the Ministry of Economy has included indicators on inequality and poverty in the macroeconomic framework to monitor their evolution in Spain. Cuerpo argued that the inclusion of these indicators allows for a "more comprehensive analysis" of the Spanish economy. In terms of inequality, the Spanish government will look at the Gin Index and the S80/20 indicator, while using the National Statistics Institute's at-risk-of-poverty rate forecasts.