Governing without a budget: what are the consequences?

BarcelonaGoverning without a budget is a reality both in Catalonia and in the Spanish government: what are the consequences? Does it really have a negative impact on institutions? And on citizens? These were the questions that were on the agenda this Monday at the Círculo de Economía (Economic Circle), where they discussed the lack of accountability in both the Spanish and Catalan legislatures: in Spain, Pedro Sánchez's budget has been extended until 2023, while in the Generalitat (Catalan government), Salvador Illa also governs with accounts approved two years ago, with the added benefit that they are Peregonès's.

Under the title "The challenge of governing without new budgets and its consequences," the event began with a conversation between the president of the Círculo, Teresa Garcia-Milà, and the president of the Independent Authority for Fiscal Responsibility (AIREF), Cristina Herrero. The first question was whether it's possible to survive with a budget extension and its consequences, and Herrero's response was forceful: "The extension is planned as an exceptional matter, and the problem is that it has become a recurring one." He concluded: "It has a very negative impact and undermines the credibility of the institutional framework and the institution of the budget."

In this regard, Herrero has not hidden his "concern," as the auditing authority of public accounts, about the successive budget extensions. "The extension does not exempt the government from presenting draft budgets," he stated clearly, since in his opinion, the failure to present them in the Congress of Deputies (or Parliament) weakens the institutional framework, considering that "it is the government's main instrument of economic policy." Last year, neither the accounts were approved nor presented in Catalonia nor in Spain. "It is unthinkable that a budget is not presented, the Constitution does not provide for it [...]. It exempts the government from citizen control and the Parliament," Herrero added forcefully, now that the PP plans to present a budget. conflict of powers through the Senate, where he has an absolute majority, precisely because Pedro Sánchez has not yet presented a budget.

In fact, this Monday, also in Barcelona, the Deputy Prime Minister of the Spanish government, María Jesús Montero, has promised to present the stability path (the step prior to drafting the budget) in the coming days at the Fiscal and Financial Policy Council, and has also said that she would present "as soon as possible" the new financing system, which should also allow for the unblocking of the negotiations on the accounts between ERC and the PSC.

The same conclusions about the negativity of not having a budget, in fact, Herrero has also extrapolated to the Generalitat, although in this case the Catalan government has sent a forecast of the economic and financial plan for next year.

On the other hand, she has also expressed concern that this trend is spreading to the European Union. While until now it was mandatory for Member States to submit their respective budget plans before October 15th, provided they were not in an election period or forming a new government, he admitted that this guideline is now being relaxed with a change in interpretation of the regulation. A new dynamic that, he said, Spain inaugurated precisely last year, when Pedro Sánchez failed to present his budget plan and the European Commission "did not request it."

In this regard, he explained that the Airef has requested that a draft budget be presented and the Ministry of Finance has responded that it is aware of it, but that there are elements that recommend "prudence," such as the fact of "natural disasters," energy impacts, or the uncertainty of tariffs.

The forecast

In Herrero's opinion, having to govern with an extension and not having a budget every year makes multi-year planning and the administration's medium-term strategy difficult, as well as adding to the difficulty of forecasting for the autonomous communities and also for private entities. "The more time passes, the less the budget adapts to economic reality," he said, also warning that while it worked in 2024, the situation in 2025 is already "more tense." Be that as it may, according to his calculations, the State will meet the deficit target set by the European Union, reaching 2.6%, below the 3% demanded by Brussels. Why? Because there is an increase in tax revenue and, at the same time, despite successive extensions, it seems that spending is not being restricted.

The Economic Circle session continued with a debate between the PP's deputy secretary of economy, Alberto Nadal, and Jordi Sevilla, the former socialist minister under José Luis Rodríguez Zapatero, who gave the event a more political tone. Alberto Nadal, former Secretary of the State Budget (2016-2018), downplayed the possibility that Spain will meet its deficit targets this year, noting that if this is the case, it will not be due to "budget planning" but rather an increase in revenue collection that could change at any time.

Nadal was highly critical of the Spanish government's failure to present a draft budget, believing that it is depriving the Cortes of "executive control." "There are no references to be able to monitor what spending is being done and what is not," he lamented. Thus, he promised that if they govern, they will modify the law so that if the accounts are not presented, there will be "consequences" for the government.

The Popular Party leader countered his ideas with Jordi Sevilla, who pointed out that despite everything, "rating agencies continue to improve Spain's debt rating." Sevilla added that 80 percent of the state budget is committed to transfers to other administrations and other items, and that, in reality, the current government only has a 20 percent margin, thus undermining the priorities that the Spanish government can set. In any case, he also expressed concern about the "democratic deterioration" and concluded with a prediction about the Spanish legislature: "This will be the first legislature without a budget. They will be presented, they will not be approved, and there will be a slight early election of a few months, practically exhausting the legislature."