AIReF calls for a comprehensive reform of the national fiscal framework to address its weaknesses and bring it into line with the European framework

• AIReF has reviewed the national fiscal framework since its introduction and finds that shortcomings in design and implementation have undermined its effectiveness and led to low compliance with fiscal rules 

• It identifies inconsistencies between the various rules in place, coordination problems between administrations, and an excessively strict system of correction measures that is ultimately unusable 

• It examines year-by-year compliance with the rules and estimates that, had the framework been strictly followed since its introduction, public debt would now be around 69% of GDP 

• It also reviews the reform of the European framework, which is based on principles it views positively but which differ from those underpinning the national framework, creating inconsistencies that heighten institutional uncertainty and weaken implementation 

• It notes that the reform included amendments to the EU directive on national fiscal frameworks, which Spain will have to transpose in 2025, creating an opportunity to pursue a comprehensive, far-reaching reform of the national framework 

• It calls for a review of the system of numerical fiscal rules in line with the new European framework, placing the expenditure rule at the centre once it is aligned with the European one 

• It recommends revising the target-setting process and strengthening the credibility and enforcement of preventive and correction measures, with a greater focus on medium-term compliance and clearer incentives to meet the targets 

• It proposes expanding the content of the MTP and of the progress report, and establishing a requirement for each administration to draw up its own MTP 

• It calls for further development of certain general principles in the Stability Law, for the escape clause to be regulated in line with the European framework, and for the extraordinary financing mechanisms to be redefined 

The Independent Authority for Fiscal Responsibility (AIReF) published its Opinion on the reform of the national fiscal framework. This framework brings together the rules, institutions, instruments and budgetary practices designed to safeguard budgetary stability and the sustainability of Government accounts. AIReF reviews how the framework has operated since it came into force, as well as the implications of the reform of the European framework approved in 2024. That reform represents a major shift and includes amendments to the directive on national fiscal frameworks, which Spain must transpose before the end of 2025. It concludes that Spain needs to undertake a comprehensive reform of its national fiscal framework in order to address the weaknesses observed since its introduction and to align it with the new approach of the European framework, which emphasises a medium-term perspective, national ownership and differentiation.

AIReF recalls that Spain’s current national fiscal framework was developed after the financial crisis and alongside the European legislation that viewed national frameworks as tools for strengthening compliance with EU commitments. In Spain, this development took shape through the reform of Article 135 of the Constitution and the adoption of the Organic Law on Budgetary Stability and Financial Sustainability (LOEPSF), among other changes. Since the framework was introduced, AIReF has identified weaknesses in how it operates, stemming both from its design and its application.

It points, first, to the problems created by having several rules that apply simultaneously: the expenditure rule, the deficit rule and the debt rule, even though, in practice, the annual deficit targets tend to dominate. It also finds that these rules lack internal consistency, as budgetary stability targets are set without regard to the expenditure rule or to the starting position of each administration. According to AIReF, this results in targets that are often unfeasible and not mutually coherent. Finally, the national fiscal framework can become effectively inoperative, as is currently the case, when the budgetary stability targets have not been approved – a situation that has persisted since 2023.

AIReF also identifies weaknesses in the system of correction measures set out in the LOEPSF, which can be so strict that it is rendered effectively unusable. It notes that these measures are applied without adjusting their intensity to the scale, cause or recurrence of the deviation; they create economic costs, turn into bureaucratic requirements such as the Economic-Financial Plans, or lead to across-the-board spending cuts. It further observes that the commitments assigned to the different administrations do little to foster their ownership, as they are widely viewed as being imposed by central government.

AIReF considers that these design and implementation shortcomings, together with other external factors, have undermined the effectiveness of the national fiscal framework. This can be seen in the low level of compliance with the rules – particularly the stability targets and the expenditure rule – except in the case of Local Governments. Finally, AIReF has carried out a simulation showing that, had the rules been observed in the years in which they were not suspended, public debt would now stand at around 69% of the GDP.

Reform of the European fiscal framework

In its Opinion, AIReF also reviews the implications of the reform of the European fiscal framework adopted in April 2024. The reform is built around three elements that AIReF views positively: a stronger medium-term perspective; the introduction of differentiated, country-specific commitments within a single quantitative rule – the path for primary expenditure net of revenue measures; and greater national ownership to support compliance.

These features differ markedly from those that shaped the national fiscal framework, creating an inconsistency that heightens institutional uncertainty and weakens the effective application of both frameworks. AIReF notes in particular that the multiplicity of national rules makes it harder to meet European targets and draws attention to the differences between the two expenditure rules. The national expenditure rule is designed for countries that are already in structural balance, as it stipulates that eligible expenditure cannot grow faster than the economy’s nominal potential growth. The European rule, by contrast, is intended for economies that need to place their public debt on a clear downward path. In addition, the national expenditure rule excludes Social Security and therefore pension expenditure, which accounts for almost one third of public spending.

According to AIReF, the lack of consistency between the two rules can lead to very different assessments. In its Report on draft budgets and main budgetary lines of the General Government for 2026, AIReF found that applying the national expenditure rule would require adjustments amounting to €12bn, whereas no adjustment would be needed to comply with the European commitments. However, this situation would be reversed in 2026, and meeting the national expenditure rule would no longer guarantee compliance with the European rule.

In its Opinion, AIReF also notes that the first steps in implementing the new framework are falling short of expectations, as the initial Medium-Term Fiscal-Structural Plans (MTP) represent more of a commitment to aggregate fiscal targets than genuine medium-term fiscal strategies. In Spain’s case, these plans lack complete macroeconomic and fiscal scenarios, do not set out specific measures and reforms, and have been launched without the involvement of Parliament, the different administrations, or AIReF.

According to AIReF, the national framework is fully capable of reinforcing these elements, and the transposition of the EU directive on the requirements for national fiscal frameworks creates a clear opportunity to do so. This directive was amended as part of the broader reform of the European fiscal framework. The amendments introduce new guidelines for improving statistical systems, strengthening medium-term budgetary frameworks and Independent Fiscal Institutions (IFIs), and incorporating requirements to reflect the impact of climate change. With regard to IFIs, the directive adds a new function to their mandate: assessing and reporting on the soundness, coherence and effectiveness of the national fiscal framework. Member States must transpose it by 2025.

Proposals

The institution considers that these factors together call for a comprehensive, far-reaching reform of the national fiscal framework. AIReF sets out a series of proposals to address the weaknesses identified and to strengthen consistency with the European framework:

• Review the system of numerical fiscal rules, placing the expenditure rule – aligned with the European one – at the centre of fiscal oversight.
• Establish a target-setting procedure with transparent, explicit criteria that ensures compliance with MTP commitments, takes account of the feasibility and starting position of the different administrations, and fosters ownership of those commitments.
• Broaden the content of the MTP and regulate the procedure for drawing it up, so that it becomes a realistic and credible medium-term fiscal strategy. Expand the content of the Annual Progress Report accordingly.
• Require the central government, the Social Security Funds, the Autonomous Regions and major local governments to draw up their own MTPs, in order to ensure consistency between each administration’s medium-term budgetary planning and that of General Government as a whole. These MTPs would be prepared in parallel with the national plan, following a similar procedure for their preparation and approval and with comparable content.
• Strengthen the credibility, effectiveness and practical application of the system of preventive and correction measures:
  • Rationalise the system by removing measures that are formally mandatory but lack credibility, and by introducing greater gradation.
  • Set predefined maximum deadlines for actions such as publishing the fiscal-rule compliance reports or convening the Fiscal and Financial Policy Council after an Economic–Financial Plan (PEF) has been submitted.
  • Reform the treatment of non-compliance using a more flexible, multi-year approach, including the introduction of a control account, in line with the European framework.
  • Extend preventive measures to central government so that risks of non-compliance can be addressed before they materialise.
  • Replace expenditure containment agreements with mandatory spending reviews.
  • Link compliance with the fiscal rules to specific incentives.
• Develop the content of several general principles in the LOEPSF, such as efficiency and effectiveness, institutional loyalty and transparency.
• Reform the extraordinary financing mechanisms to support the gradual return of the Autonomous Regions to the markets, restricting their use to specific, exceptional and temporary situations and subjecting them to appropriate conditionality.
• Broaden the regulation of the escape clause in line with the European framework.
• Remove provisions that are neither applicable nor enforceable.
• Adapt AIReF’s legal framework to the new European and national framework, and in particular incorporate its new responsibility to assess the soundness, coherence and effectiveness of the national fiscal framework.

AIReF also stresses that the ongoing uncertainty surrounding the reform of the regional financing system – which has yet to be defined –, together with the continued use of the extraordinary financing mechanisms for the Autonomous Regions, may further weaken the incentives to comply with the national fiscal framework. It adds that the sustainability of the public finances needs to be addressed from an integrated perspective that takes these factors into account.