The Spanish government approves a record spending ceiling of 212.026 billion euros

MadridThe Spanish government is taking a step forward towards having a state budget for 2026 – the 2023 budget remains in effect – despite the difficulty of passing it in the Congress of Deputies after Junts broke ties with the PSOE. The Council of Ministers on Tuesday approved a record spending ceiling (the maximum amount that all levels of government can spend in a year): €212.026 billion without European funds. With the arrival of the latest funds from the European COVID-19 relief package, the spending ceiling jumps to €216.177 billion. This represents an expansionary spending limit for 2026. Specifically, it is 8.5% higher than the 2025 limit (€195.353 billion), which was never implemented due to a lack of political agreement and the snap election in Catalonia. The Spanish government's strategy is to capitalize on the signs of economic recovery, particularly regarding increased tax revenues, to maintain a balance between public spending and the gradual reduction of the deficit and debt. "This is a significant, but also prudent, increase," Finance Minister María Jesús Montero stated at a press conference this Tuesday, following the cabinet meeting. "This spending ceiling bears the DNA of a progressive government," Montero affirmed. The Finance Minister also maintained that although they were unable to pass a budget during this legislative term, the economy continued to "grow," she said.

Among the major budget items the Spanish government will have to address next year is the increase in pensions, which will once again be indexed to average inflation. In fact, this item is expected to grow only gradually until 2050. There will also be an increase in public sector salaries and, finally, a commitment to spend more on defense. For now, Pedro Sánchez's government has opted for alternatives to the budget to meet its NATO commitment to reach 2% of GDP for defense by 2025.

Reduction of the deficit and debt

Montero also detailed the fiscal path for the 2026-2028 period. In fact, this Monday she already communicated to the autonomous communities her deficit target for next year (0.1% of GDP). He did so within the framework of a Fiscal Policy Council overshadowed by the future model of regional financing

For all public administrations, the minister forecasts a deficit of 2.1% of GDP in 2026, meaning the State would comply with fiscal rules. By subsector, the central government should close next year with a public deficit of 1.8% of GDP; municipalities with a balanced budget (0.0% of GDP); and Social Security will have a deficit target of 0.2% of GDP. "I hope that when the stability path is voted on in the Congress of Deputies, the political groups will rise to the occasion," Montero stated.

New macroeconomic framework

This spending cap is accompanied by a new macroeconomic framework. Regarding gross domestic product (GDP, the indicator that measures a territory's economic activity) growth for 2026, the government has now raised its forecast to 2.9%, as detailed by Economy Minister Carlos Cuerpo at a press conference this Tuesday following the cabinet 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," Cuerpo asserted, adding 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 is introducing indicators on inequality and poverty to monitor their evolution in Spain. "This is a priority for Spain," stated the Spanish government spokesperson, Pilar Alegría, at a press conference this Tuesday. Cuerpo has argued that the introduction of these indicators allows for a more comprehensive analysis of the Spanish economy. In terms of inequality, the Spanish government will focus on the Gin Index and the S80/20 indicator.