The Government has taken the first steps to approve the new budgets and has already set the dates on the calendar: it aims to present the deficit path to Congress by the end of the year. This is the only preventive and mandatory accounting procedure that requires the approval of the Cortes, but its success is not guaranteed. This procedure, in fact, has been the protagonist of heated brawls and sensational parliamentary defeats of the Executive in the recent past, a script that could repeat itself and in the face of which the Minister of Finance and First Vice President, María Jesús Montero, has chosen to cure herself: she stated that there will be stability objectives even if the Cortes reject them, invoking the Constitution in search of a legal solution for an unprecedented situation.
“In the event that this path is rejected, the one provided for by the Constitution, which establishes the budget balance for the autonomous communities, will come into force,” Montero assured Tuesday in the press conference after the Council of Ministers. In addition to the route, the minister presented the spending ceiling for next year, an essential procedure for approving the budget, although not subject to a vote, and assured that she aspires to present the 2026 accounts in the first quarter of next year.
The approved path foresees a deficit equal to 2.1% of GDP by 2026 for all public administrations – central, community, social security and local authorities. The communities will be responsible for 0.1% of the total, a target that Montero communicated to the regional Treasury advisors on Monday at the meeting of the Fiscal and Financial Policy Council, in which he insisted that, if these targets do not come into force, the regional administration will lose that tenth of the spending margin and will be condemned to break even.
The mess has to do with the legislation itself. The development of the stability path is foreseen by the budget stability law. This requires that the path, once communicated to the territorial and local governments, be put to the vote in the Plenary of the Congress and, in case of rejection, that the Government presents a new proposal within a maximum of one month which will have to be examined again by the Chamber. In any case, the law does not provide the path to follow if the Cortes veto the objectives presented twice consecutively.
“What happens if it is not approved? The rule was designed for a scenario that no longer exists, in which if the (parliamentary) majority was not reached for the deficit target, it was not reached for the budget either. In the scenario we find ourselves in now, which is an anomaly, in which budgets can be automatically extended, the rule does not fit,” reflects a former lawyer of the Constitutional Court.
The stability law requires the approval of the path by Congress, but does not expressly prohibit proceeding with the preparation of the accounts if the path does not have parliamentary approval. However, there is a constitutional obligation to present a budget bill. Administration sources explain that, in the current context, it could be interpreted that the Government has respected the law, since it presented the deficit objectives, and that it can prepare the budgets because the constitutional mandate imposes it, which is above any organic law.
A situation of impasse Similar to what is emerging now, it was already presented last year, when the Senate reversed the deficit path twice. The Government then made use of a report from the State Attorney’s Office which approved the unfreezing of the budgets. The document established that, in the absence of approval of the objectives by the Cortes, the objectives contained in the Stability Program approved by Brussels would be applied, the economic roadmap that the community partners had to send to the European Commission every spring.
Since then, however, the situation has substantially changed. The Stability Program is no longer being developed, as it is not required by the new European framework that came into force this year, and the Senate no longer has veto power over the path. What remains is parliamentary instability, which is causing legislative paralysis and whose most obvious expression is the impossibility of approving new budgets. The accounts currently in force are those for 2023, which in the meantime have been extended.
Structural deficit
The Constitution, in article 135, does not exactly establish that communities must close the budget with a zero deficit – a hypothesis which also provides for local businesses – but refers to the structural balance. This quantity does not coincide with the stability objectives, since it refers to a deficit “adapted to the economic cycle, complicated to measure and which has never been officially calculated to evaluate fiscal discipline”, explains Diego Martínez López, Fedea researcher. This analysis center published a study this summer in which it quantified the structural deficit of the autonomous communities at 1.1% of GDP in 2023 and 2024, so taking this indicator as a guide would mean “a much more difficult adjustment”, concludes the economist.
To clarify the terms, the structural balance – which can be positive or negative, deficit or surplus – is what persists even if the economy is functioning at full capacity because it is due to internal imbalances between public revenues and expenditures. The current balance, however, takes into account the economic cycle and includes, for example, the drops in collections that usually occur during a recession. The deficit to which the stability path refers is the sum of both. In this moment of vigorous economic growth, the cycle plays in favor of the current balance of the administrations, since public income is more sustained and structural expenses are reduced because there is less unemployment and less need to help businesses.
The experts consulted agree that the current situation is “unprecedented”, since a panorama like the current one had never been presented, and that the reference to the Constitution is an interpretation that is made to find legal congruence with an unprecedented panorama, which the rules do not explicitly contemplate. “We find ourselves in an unknown scenario and there is a legal vacuum,” confirms Martínez López.
