The Generalitat, forced to contain public spending to exceed limits

BarcelonaSalvador Illa's government often boasts about the positive economic data in Catalonia: It is the second community in the State with the highest GDP, only behind Madrid and is the economy of the eurozone which grew the most in 2024, with a rate of 3.4%. However, there is one figure that clouds the balance sheet of the Catalan executive: it is the growth in the Generalitat's spending last year. For the first time since 2019, the Government has violated the so-called spending rule, one of the budgetary discipline measures aimed at ensuring the sustainability of public finances. The limit set by the Treasury for all the autonomous regions was 2.6%, while the Generalitat closed the year with a spending growth of 6.9%. Now, the Government must investigate these issues to contain public spending and once again comply with the law. And it will do so, above all, with "containment" measures in the health sector, although sources from the Department of Economy tell ARA that "under no circumstances" will there be cuts.

The final straw came in June, when the Ministry of Finance included Catalonia on the list of 13 autonomous regions in default. This forces the government to present what is called an economic-financial plan, a document in which it must clarify what has led to overspending and specify and schedule the measures it will implement to correct it, indicating the affected items. It has the handicapof having to do so with the extended budgets, after the socialists have spent their first year in the Generalitat governing with the accounts left by Pere Aragonès in 2023. In any case, the executive has already sent the economic-financial plan to the ministry and is waiting to present it to the Fiscal and Financial Policy Council, pending convening. Before that, however, the Independent Authority for Fiscal Responsibility (AIREF) also evaluates the draft sent by the non-compliant regional administration.

Health, a hot potato

Specifically, in the draft sent by the Generalitat to Airef, the Catalan government stated that the imbalance was due to the increase in spending on public services—education, healthcare, social services, and security. As Airef states in its report, consulted by ARA, the Catalan government states that "a significant part of the deviation" is explained by the increase in the number of teachers, Mossos d'Esquadra (Catalan police), firefighters, and rural police officers, as well as by the improvement in the working conditions of education and healthcare officials—agreed upon within the education sector. Executive sources consulted by ARA corroborate this. One of the main peaks occurred in 2023, when former Health Minister Manel Balcells signed a €320 million agreement with the Catalan Institute of Health (ICS) to improve the conditions of 55,000 healthcare professionals.

In this scenario, the Government itself now acknowledges that it will have to implement "saving measures" focused primarily on "controlling healthcare spending." At the end of last year, an agreement was approved to limit the growth of spending by the Health Department, CatSalut, and the ICS to 3.2%, with a saving of €420 million. Added to this is a €70 million reduction in measures "to improve efficiency."

The Government rules out cutting spending.

The problem of having to balance the health figures at the end of each fiscal year has been around for a long time. Last year, the Government intended to approve an extraordinary fund to reduce displaced health spending and avoid, as happens year after year, finding actual spending exceeding budgeted spending. By 2026, the idea is to activate this extraordinary fund with 800 million euros, increasing to 200 million euros in 2027 and 2028, and 100 million euros in 2029, as stated in theBudgetary Guidelines Report this year - which, on the other hand, once again notes "a risk" of non-compliance with the spending rule for 2025. At this time, negotiations for the 2026 budget have not been opened and is in charge of what may happen with the new singular financing, in negotiations between the Socialists and Republicans in Madrid.

Does all this mean that Salvador Illa's government wants to reduce healthcare spending? Sources at the Ministry of Economy deny this and emphasize that growth will be 3.2% in 2025 and will continue to increase in 2026. This figure is lower than in previous years, but it will not fall next year. However, outside the healthcare sector, these "efficiency" adjustments will also have to be made. The department cites, as an example, the implementation of a "rationalization" program for aid and subsidies that seeks to avoid "duplicities and reduce management costs." The reform of the public administration, led by the Presidency, also aims to optimize its structure. "Either we reform it or the system collapses," acknowledged the Minister of the Presidency, Albert Dalmau, at a Prisa group forum in Barcelona on Tuesday.

However, Airef warned the Generalitat (Catalan Government) back in July that it should include "greater detail" in the measures of its economic and financial plan. Furthermore, despite the Economy Ministry's arguments regarding the rationalization of spending, it also noted a "risk of non-compliance" with the rule in 2025, with a "more favorable" outlook for 2026. "By 2025, the region plans to comply with the 2025 spending rule, but we believe it will not," it said at an event this Monday at the Círculo de Economía (Economic Circle).

More revenue?

Beyond cutting costs, another way the Generalitat is trying to rectify the situation is by increasing revenue (for example, by raising taxes). One of the arguments the Catalan government is putting forward to Airef is that, as a result of the reform agreed with the Commons, expects to receive more money from the Property Transfer Tax (193 million annually) and the water fee (80 million). €100 million will also be recovered from the elimination of discounts on public transport fares, according to the report. However, in 2026, no additional amount will be collected from the increase in the tourist tax agreed with the Comuns. that the Government was forced to postpone pending an agreement with the ERC, which has not yet been reached. Finally, the decision to lower personal income tax for the lowest incomes and introduce the deduction for regular rent for certain groups will result in €65 million less revenue in 2027.

Compliance with the spending rule has been mandatory since it was introduced by law in 2012, in the wake of the economic crisis. Since 2024, it has also been the benchmark measure for the sustainability of public finances, a result of the reform of the European Union's fiscal governance framework. It is a distinct indicator from so-called budgetary stability, which is measured by the deficit (when more is spent than income is received) and debt. Last year, Catalonia reduced its deficit as a percentage of GDP by one point, from 1.4% to 0.4%. In other words: the Generalitat's spending is growing more than it should, but the balance of accounts is (for now) under control. "Both current and investment spending will continue to grow," Economy sources maintain, referring to the 2026 financial statements, which are currently being prepared.

Catalonia is, however, the most indebted autonomous community in Spain, with a debt of 89 billion euros, representing 30% of its GDP. Since there is outstanding debt, the way to prevent spending from spiraling is precisely by applying the rule that limits it. The Generalitat has missed the debt target twice, in 2014 and 2015. It has missed the stability target five times, most recently in 2019. And the spending target five times, most recently in 2024.