The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, has taken part today in the Europa Forum organised by Nueva Economía Fórum where she reviewed the economic and fiscal situation of the country. In her opinion, Spain is undergoing a complex period that requires responsibility and commitment from all tiers of government. “This period is complicated, but we must demand responsibility from politicians despite the uncertainty”, she remarked, after stressing that consensus and “a country agreement” are necessary, with involvement from all levels of public authority.
She began by stating that the economic context is marked by a slowdown of economic activity and a less dynamic job market. In her opinion, some of the elements of this slowdown had already been forecast before the summer and are now materialising. In the month of July, AIReF forecast higher economic growth for 2023 of 2.3% and a downturn for 2024 to 1.9%, but already forecast less dynamic economic growth in the second half of the year, due to the persistence of core inflation and a potential oil price hike, which is now a reality.
At a fiscal level, Cristina Herrero stressed that Spain is in a “somewhat vulnerable” position due to the high level of public debt and public deficit. AIReF’s forecasts point to a deficit of 4% of GDP in 2023 and around 3% of GDP in 2024, provided that the measures introduced to tackle the energy crisis and inflation are withdrawn and that the growth in spending by the Autonomous Regions is moderated.
In this context, Cristina Herrero explained that AIReF is concerned about the end of the suspension of the fiscal rules. In her opinion, these changes need to be looked at now, both in the short term, given that there is already a fiscal restriction imposed by Brussels for 2024, and in the medium term, given that the reform of the fiscal framework will require the sustainability and preparation of medium-term plans to be attended to.
This situation, she said, entails a singular national context, with new regional governments and great uncertainty regarding the formation of the Government of the Nation. In this regard, she considered that the challenge is enormous and requires the responsibility and commitment of all tiers of government.
Greater responsibility
She acknowledged that the Central Government will need to take on its role as the coordinator of fiscal policy despite the legal limitations stemming from the current political situation. In her opinion, channels exist to develop communications with the General Government sub-sectors and ensure compliance with the rules imposed by Brussels, providing the Autonomous Regions with information on the payments on account under the Regional Financing System and publishing the Report on the Situation of the Spanish Economy that establishes the reference rate for the national expenditure rule.
The President of AIReF also pointed to the need for greater fiscal responsibility by all General Government sub-sectors despite the lack of clear fiscal rules. In fact, she stressed that if the Autonomous Regions submit their budgets to take on-board the budgetary balance provided for this sub-sector in the Stability Programme Update, the growth in primary spending net of revenue measures could stand at around 9%. And if the Local Governments forecast budgetary balance, as tends to occur, growth in expenditure could reach 11%. “The idea that none of this increase will be structural spending is naïve”, she warned.
She stated that there should be shared responsibility in the medium term to prepare a medium-term fiscal strategy that allows the public debt to be redirected. In this regard, she considered the greatest possible consensus to be necessary to provide the medium-term structural plan that Spain will probably need to submit next spring with stability and credibility.
Fiscal rules
As regards the reform of the fiscal rules, Cristina Herrero considers this change to be very necessary, since the rules imposed by Brussels, which are the same for all countries, have proven to be ineffective. Although the content of the reform is yet to be seen, the President stressed the importance of establishing the measures required for the design of medium-term plans that will demand new rules and subsequent respect for their application, to which end improved coordination and participation of all tiers of government will be fundamental.
In this regard, Cristina Herrero highlighted the role that AIReF could play as a supplier of data, scenarios, debt paths and forecasts that provide the basis for defining the strategy. In her words, AIReF has the capacity to perform these exercises and its potential at a national level could be exploited to its full potential even if Brussels does not implement a more daring reform of the fiscal framework. In her opinion, fiscal institutions like AIReF could become the integrating nexus between the European framework and the national reality of each country.
Consolidate the evaluation
As regards the evaluation activity that AIReF performs, Cristina Herrero stressed that political situations like the present one do not affect the institution itself, which does not accept instructions from either public or private bodies, and which has its independence established by law through such aspects as the appointment of its president, financing through a fee and guaranteed access to information. However, the institution’s activity, above all on evaluation, may be affected by a political situation like the present one, since the studies are commissioned by the different General Government sub-sectors and thus depend on the initiative and will of the authorities that undertake these commissions.
In this context, Cristina Herrero considered it crucial to consolidate evaluation in AIReF through the Organic Law on its Creation, stressing a suitable process of commissions, stable financing for this function by AIReF by means of a similar fee to the one for its supervisory role, the participation of the institution in the selection of policies to be evaluated for them to be cross-cutting and far-reaching and a provision of human resources that is adequate and multi-disciplinary.
Cristina Herrero ended her speech by stressing that AIReF has always sought to be a useful institution and has made great progress on this usefulness by making objective data and analyses available to the General Government sub-sectors. “And this is made available for whatever may be useful to them”, she added.