Brussels asks Spain to limit public spending in 2024

The European Commission has asked the Spanish government to limit any increases in public spending in 2024 to a maximum of 2.6 percent compared to 2023 levels, and to guarantee it will follow a "prudent" fiscal policy. The request is in order to reduce Spain's structural deficit by 0.7 percent, which is equivalent to around €9.2 billion.

This 2.6 percent increase cap on net public expenditure does not take into account debt interest or unemployment funds. However, based on the Spanish government current spending plans, and assuming there are no new major spending commitments, the Commission also anticipates public spending to grow by 1.4 percent in 2024, significantly less than its growth cap.

"Taking into account fiscal sustainability considerations and the need to reduce the deficit below the reference value of 3 percent of GDP, an improvement in the structural deficit of at least 0.7 percent of GDP by 2024 [about €9 billion] would be appropriate," a report released by the Commission this week states.

"To ensure that improvement, the net growth of primary spending in 2024 should not exceed 2.6 percent," the report recommends.

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This 2.6 percent ceiling suggested by the Commission is on par with other member states that have less debt or fewer deficit figures than Spain, notably Germany, because Spain's growth forecast is higher.

However, Spain's 0.7 percent structural deficit adjustment is higher than that of other countries (0.5 percent on average) due to the high debt that Spain has, something that is, along with long lingering unemployment problems, one of the main structural weaknesses of the Spanish economy.

Put an end to energy aid

The Commission has also recommended that Spain stops or reduces energy aid packages by the end of 2023 in order to be able to relocate that money into deficit reduction. Brussels has requested the elimination of all government aid, except the windfall tax on energy companies, because it recoups significant amounts of income for the Spanish treasury.

If there is another volatile spike in the global energy market, the Commission states that any new aid measures to help Spaniards bearing the brunt of the price increases must be fiscally responsible and targeted to help only the most vulnerable households and businesses while also "preserving incentives for energy savings". 

The state aid on energy bills, such as the VAT cuts on gas and electricity bills that the Spanish government recently extended until the end of the year, in total represents an expenditure equivalent to 0.6 percent of Spanish GDP, according to Brussels.

READ ALSO: EU agrees to extend Spain gas price cap until end of the year

Brussels also recommends that Spain continues to reduce its dependence on fossil fuels and accelerate its renewable energy infrastructure.

The economic picture

According to the European Commission's assessments, there are 17 member states operating with macroeconomic imbalances including Germany, Spain, France, the Netherlands, Portugal, Romania and Sweden.

With regards to the Spanish economy, although it still has high levels of both private and external debt, these levels have fallen almost continuously in the last decade and, after a "temporary interruption" in 2022, have resumed a downward trend in 2023.

The report also noted that while there have been positive signs about unemployment being tackled, it also emphasised that it "is still high" in Spain and particularly acute among the long-term unemployed and young people.

Spain has three million unemployed people, with youth unemployment hovering around the 30 percent mark.