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    AIReF English

    “Our mission is to guarantee effective compliance of the financial sustainability principle by the General Goverment”

    Cristina Herrero: “We need a medium-term fiscal strategy anchored in a new national fiscal framework”

    Cristina Herrero en EY Insights Economics

    The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, participated today as a speaker at the EY Insights Economics Meeting and stressed that the medium-term fiscal strategy needed to ensure the sustainability of public finances must be anchored to a new national fiscal framework that can be adapted to the country’s needs and challenges. In her view, the reform of the national fiscal framework is necessary and there is room for improving procedures, coordination among public administrations and for defining rules on jurisdiction and financing at all levels.

    The President began her speech by pointing out the succession of shocks that have dominated the international landscape since 2020: the health crisis, disruptions in value chains and the war in Ukraine. An accumulation of shocks that has generated an unstable and uncertain context, with a differential impact in Spain compared with the rest of the euro area due to the greater weight of hospitality and leisure activities in GDP, and the greater degree of pass-through of the increases in energy prices in the wholesale market.

    The President also reiterated that the institutional framework in which economic activity takes place has been deliberately altered, with an unprecedented level of flexibility in intervention that alters historical relationships. Specifically, fiscal rules remain suspended and extraordinary measures and policies have been approved at a European and national level to address the pandemic and the war in Ukraine.

    However, fiscal supervision has not been suspended and is even more necessary than ever. Quantitative rules have been replaced by guidelines and Independent Fiscal Authorities ensure their consistency. However, in 2023, these guidelines already incorporate certain quantitative elements. For example, the European Commission has recommended that Spain should pursue a prudent fiscal policy, with growth in current spending with domestic financing lower than potential GDP.

    In this context and even though it is not a simple task, it is necessary to make economic and fiscal forecasts to lay the foundations for a comprehensive economic strategy, with a medium-term vision, that is able to provide certainty and foreseeability of public action and the consequences of the measures adopted.

    In this regard, the President of AIReF reviewed the institution’s latest forecasts, included in the Report on the 2022-2025 Stability Programme Update, published on May 12th. In that report, AIReF warns that debt will start on an upward path from 2025 if the structural deficit of 4% is not reduced. It also concludes that the Government’s Stability Programme sets out feasible scenarios on both the macroeconomic and fiscal side, although there are numerous vulnerabilities and it is still not the medium-term fiscal strategy that the Institution has recommended on numerous occasions.

    REFORM OF THE FISCAL FRAMEWORK

    This fiscal strategy, according to Cristina Herrero, must be anchored in a new national fiscal framework that can be adapted to the country’s needs and challenges. The current legislation suffers from deficiencies inherited from the European framework and those specific to Spain arising from its decentralisation model. It is a complex and unpredictable system, with a lack of a medium-term vision and very much geared towards supervising the regional and local governments. In addition, it has unenforceable rules, lacks transparency and coordination and requires regulatory implementation to clarify concepts and methodologies.

    According to Cristina Herrero, reform is necessary and there is room to improve procedures, coordination between public administrations and for defining rules on jurisdiction and financing at all levels.

    At a European level, the fiscal framework also requires a reform that is expected to be based on elements agreed before the outbreak of the war crisis, such as a greater focus on the medium term and sustainability, simplification of the rules and a more significant role for Independent Fiscal Institutions. In fact, AIReF contributed to the Commission’s Public Consultation on this reform in December 2021.

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