The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, participated today in the 12th Conference on Municipal Taxation organised by the autonomous tax management body of Malaga City Council. During her speech, she reviewed the current and future economic and budgetary challenges facing local entities and stressed that the sub-sector as a whole is well positioned to meet European fiscal commitments.
Cristina Herrero began her speech by reviewing the new European fiscal governance framework that came into force in April 2024 with the aim of addressing the vulnerability of highly indebted economies and ensuring credible public debt reduction strategies without renouncing growth. This new framework represents a profound change in approach, placing sustainability and growth at the centre and promoting national ownership. It also simplifies implementation with a single control variable: primary expenditure net of revenue measures.
Countries must ensure compliance with these new rules in their Medium-Term Structural-Fiscal Plans, a new key element. However, according to Cristina Herrero, the first plans submitted have evidenced a slower than expected start. Specifically, the Spanish plan is more of a political commitment to aggregate fiscal targets than a true medium-term fiscal strategy.
In fact, Cristina Herrero pointed out that, at the national level, all the tasks remain to be carried out, such as specifying this fiscal strategy and adapting the national framework to the European reform. In this regard, she stated that national reform should be approached from a comprehensive perspective that considers fiscal governance itself, a distribution of revenue appropriate to competences and additional financing mechanisms. She stated that this reform cannot be postponed, but in the short term progress must also be made on ensuring consistency between European and national expenditure rules.
The local sub-sector
The President of AIReF analysed the capacity of Local Governments to contribute to meeting the commitments set out in the new European fiscal governance framework and to improving the quality of public finances.
She stated that the local sub-sector is well positioned to comply with fiscal rules in terms of deficit, expenditure and debt. Except for 2022, both the Local Government sub-sector and large Local Governments have recorded a surplus since 2013. Along the same lines, AIReF forecasts a surplus of 0.3% of GDP for the sub-sector for 2025. In fact, practically all the large Local Governments analysed by AIReF, including Malaga, will close this year with a surplus. In terms of expenditure, except for 2015 and 2019, the reference rate has been complied with in all other years in which it has been approved, both by the sub-sector and by Local Governments with more than 500,000 inhabitants. Accordingly, in 2025, the sub-sector will comply with both the European and national expenditure rules. In fact, AIReF considers that Local Governments have sufficient tax capacity to give them additional room for manoeuvre. In terms of debt, the sub-sector has progressively reduced its indebtedness since 2012 and closed 2024 with debt of only 1.4% of GDP. For 2025, AIReF estimates LG debt of 1.2% of GDP.
Regarding the specific situation in Malaga, the President recalled that the AIReF Local Governments Monitor allows for an in-depth analysis of its situation, with detailed data on revenue, expenditure, debt and the average payment period to suppliers, among other aspects. It also allows for comparison with other city councils with a similar population size, as well as consultation on whether there is a risk to sustainability.
Lastly, the President stated that Local Governments can also contribute to improving the quality of public finances. She stressed the importance of continuing to evaluate public policies to improve the quality of public finances, as advocated by the new European framework and the recent ECOFIN recommendation. She recalled that Local Governments and coordination bodies such as the National Commission of Local Administrations can also commission evaluations from AIReF. The institution, which has established itself as a benchmark in evaluation, is currently developing its second Spending Review 2022-2026 and commissions from 12 Autonomous Regions, and has already carried out studies at the local level (on municipal waste management) and is ready to take on new commissions.
