In a significant development regarding public financial management, both the Spanish Central Government and thirteen autonomous communities have failed to comply with the fiscal objectives set forth by the Stability Law.

This legislation, which establishes deficit, debt, and spending targets for the public sector, has been contravened as a consequence of a substantial increase in public spending projected for 2024.

According to compliance reports from the General Intervention, the allowed limit for computable expenditure growth in 2024 was set at 2.6%.

However, the Central Government raised its expenditure by 6.8%, nearly tripling the legally permitted cap.

A considerable portion of this excess was attributed to payments for judicial sentences amounting to €6.582 billion.

Even without this significant expenditure, the Central Government would have exceeded the spending limit dictated by the Stability Law.

Beyond the Central Government, the compliance report revealed that an additional 13 autonomous communities also breached the spending regulations.

Collectively, these communities increased their computable budgets by 5.1%, which is almost double the maximum permissible increase of 2.6%.

In contrast, local corporations adhered to the Stability Law, managing to reduce their expenditure by 2.3%.

This noncompliance presents a challenging scenario for the Ministry of Finance.

The Stability Law mandates that any administration violating the spending rule must propose an economic-financial plan aimed at meeting the established targets in the current and subsequent years.

This plan must be submitted to Parliament or a competent body within a month and must include a detailed explanation of the reasons for noncompliance, the projected trends in revenues and expenditures, and the specific measures the administration intends to implement.

The Independent Authority for Fiscal Responsibility (AIReF) has estimated that without additional adjustment measures, both the Central Government and the collective autonomous communities will continue to breach the spending rule through 2027. This emphasizes the importance of the Stability Law, which requires noncompliant administrations to rectify deviations within the same year.

The responsibility for addressing these breaches lies primarily with the Central Government, particularly the Ministry of Finance, which must ensure that noncompliant administrations submit their economic-financial plans.

In the past few years, the suspension of fiscal rules has exempted the Ministry from this responsibility, but it now faces a decision regarding adherence to or deviation from legal guidelines.

Historically, prior to the pandemic, the Ministry of Finance consistently ignored the Stability Law by neither submitting the economic-financial plan at the Central Government level nor compelling autonomous communities to do so.

This inaction often stemmed from the Central Government’s own noncompliance, which limited its capacity to demand similar accountability from other administrations.

Despite breaching the spending rule, the Central Government successfully met its deficit target, attributing this achievement to robust revenue collection.

Economic growth, inflation adjustments, and the cessation of VAT reductions facilitated a simultaneous increase in spending while reducing the deficit.

The deficit objective for the Central Administration was 3%, and it concluded the year at 2.91%.

The General Intervention of the State (IGAE) has confirmed that six autonomous communities failed to meet the deficit target as well.

The established objective for autonomous communities was a balanced budget, or a deficit of 0%, yet they closed the year with an aggregate deficit of 0.1% of GDP. The Valencian Community led in noncompliance with a deficit of €2.782 billion, of which €292 million pertained to extraordinary expenses linked to the severe weather event on October 29.

Catalonia registered the second-largest deficit, amounting to €1.227 billion.

Other regions such as Euskadi and Madrid reported deficits of €585 million, while Murcia concluded with €478 million.

La Rioja reported a slight negative balance of only €4 million.

The remaining autonomous communities achieved a budget surplus.

The Valencian Generalitat and Catalonia, along with the Murcia Regional Government, are encountering difficulties in financing from private debt markets.

They are reliant on the Ministry of Finance's provision of extraordinary liquidity from the Autonomous Liquidity Fund (FLA) to address their financial shortfalls and ongoing treasury tensions experienced since last year.

However, the Stability Law stipulates a requirement for an adjustment plan to accompany any additional liquidity provision.

The Ministry of Finance has largely overlooked this obligation, owing to sympathetic considerations of structural financing issues faced by communities such as Valencia, placing the onus on the current Finance Minister María Jesús Montero.

Regarding compliance with the spending rule, thirteen autonomous communities exceeded the allowed limits in 2024. Only Andalusia, Castilla-La Mancha, the Canary Islands, and Extremadura adhered to the stipulations of the Stability Law.

In 2024, the computable expenditure for the autonomous community sector exceeded that of 2023 by €10.088 billion, reflecting a variation rate of 5.1% compared to the previous year.

Consequently, this entire subsector failed to comply with the established objectives of the spending rule, leading to obligations for the four compliant regions to submit their own economic-financial plans.