The Spanish government faces its first major test for the new state budget.

MadridThe deficit and debt targets, that is, the path to budgetary stability, have never been in the spotlight like they are now. In fact, it used to be an element that, beyond the stir it caused in the Fiscal and Financial Policy Council (CPFF), where the Ministry of Finance communicates its targets to the autonomous communities, went unnoticed once it reached Congress. However, this changed in 2024, when the Spanish lower house rejected them and turned the drafting of the State budget—the stability path being the preliminary step—into a dead end. A scenario that will probably be repeated this Thursday, or at least that's what the Ministry of Finance expects.

We're taking it one step at a time. Last week, the Spanish government approved the spending ceiling (the maximum amount that all levels of government can spend in a year) and the deficit and debt targets, as well as the spending rule, for 2026. In addition to overall targets for the entire country, the plan includes targets for each subsector (central government). This is a binding element that affects the public accounts of each administration. This is the first step towards drafting and presenting a new national budget, as promised by Pedro Sánchez after extending the 2023 budget. However, the Treasury's proposal for next year does not have guaranteed votes.

From the outset, there is nothing to suggest that it can count on the votes of the PP, which already voted against it in last week's CPFF: the Treasury proposes a deficit target of 0.1% of GDP for the autonomous communities in 2026, 2027 and 2028. the current break with the PSOE, in 2024, Regarding the same deficit target for the autonomous communities, he already voted against it.That's why the numbers don't add up. Furthermore, Podemos and Compromís have already announced they will abstain. "It doesn't look like it's going to pass," lamented First Vice President and Minister of Finance, María Jesús Montero, on Tuesday. In any case, Montero herself doesn't intend to throw in the towel, unlike in 2024, and will present the same targets for the second time in a row.

What happens if they are rejected again?

Should the stability path be rejected this Thursday, the Spanish government will have a maximum of one month to approve a new stability path and submit it to Congress again. If it fails a second time, the deficit and debt targets outlined in the latest structural fiscal plan sent to Brussels will be adopted. Although this plan does not detail specific deficit targets for subsectors, the Treasury interprets this scenario as implying fiscal balance for the autonomous communities. This means the deficit target for the communities would be 0% of GDP.

"[Voting against the new path] is like burying our heads in the sand," lamented Montero, who even estimated that the communities would lose an average of €1.755 billion in spending margin annually (€5.485 billion on average between 2026 and 2027). In the case of Catalonia, it amounts to 1 billion euros between 2026 and 2028.