On Tuesday, the government set a non-financial spending limit, colloquially known as an expenditure ceiling, which sets how much all government administrations will be able to spend next year. In this case, the data is especially relevant because European tax rules will be activated again in 2024which were suspended due to the coronavirus pandemic and continue to be paralyzed by the impact that Russia’s invasion of Ukraine has had on inflation on the continent.

Although Spain’s deficit will not be able to exceed 3% in 2024, unless the country wants to enter into an excessive deficit procedure that could entail penalties, which the economy ministers of the “twenty-seven” countries have not yet finalized, the government approved highest spending ceiling in the country’s historyin the amount of 199,120 million euros, which is 0.5% more than the limit approved in 2023.

How does this reduction in the deficit, which will be about 4% this year, coincide with increased spending? The key is in increase in collection: The executive branch has estimated that tax revenues next year will increase by 9% compared to 2023, providing enough margin not only to increase spending but also to provide some financial relief to autonomous communities and local entities. seeks to avoid a blockade of the PP in the Senate, where it has an absolute majority.

And why does the government think it will collect more taxes than this year? In this case it is a combination inflationwhich will still remain strong – the Bank of Spain, AIReF and the European Commission believe that prices next year will rise more than this year – therefore some support measures will be reduced citizens and companies. And this will inevitably lead to an automatic increase in income, because prices will rise.

The executive branch has already announced that tax collections are increasing and that it is confident that it will end this year with a new record figure, some 12 billion more than what was collected in all of 2022. Until September, the Tax Agency received more than 190 billion, which is 4.5% more than in the same period of the previous year, which was partly justified by prices.

Measures that can be expanded

It is unclear which measures will remain in place next year. It is worth recalling that as a result of the Russian invasion of Ukraine, the executive branch approved Reduced VAT on food products, to which were added discounts on energy resources, as well as lower prices for gasoline. Later, other measures appeared, such as social bonuses or discounts on state public transport.

“The cost cap is reasonable and the government has the ability to introduce or expand some measures to combat rising prices if necessary. A decision we will make based on the latest available data,” said Maria Jesús Montero. That is, the approved spending ceiling “does not exhaust” the budget potential already included in the budget plan sent to Brussels, which in principle provided for the abolition of all anti-crisis measures.

Institutions such as AIReF, BdE and OECD are already warning about need to complete the package tax cuts because otherwise it will be difficult to achieve budget goals. According to their calculations, ending all these measures would result in an additional collection of almost 5 billion euros in 2024, equivalent to 0.3% of GDP.

The bulk of this revenue will come from the end of the VAT reduction on food, but a similar amount will come from the end of the reduction in the tax on the cost of electricity production, once the special tax on electricity ends. on the cancellation of the VAT reduction on electricity. Each would bring about another €1 billion into government coffers, while ending VAT cuts on gas, timber and pallets would bring in another €400 million, it was claimed at the time. Five days.

On Tuesday the government announced that I won’t specify which one they continue and which ones – not earlier than the end of the year, based on the progress of collection, as well as inflation data. But he assured that he has the financial reserves to extend some of them, as already mentioned by government president Pedro Sánchez.

Another important factor to consider is European funds, this will increase next year’s spending cap by €9.9 billion. This year, 25 billion of the spending limit came from European funds. Without this injection of money from the Commission, the spending limit increased by 9.3% million, which Montero assures is consistent with Brussels’ recommendation not to increase net primary spending by more than 2.6%.