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Non-compliance with the EU spending rule, Andalusia and Madrid in the lead for their reduction in taxes on large fortunes
- September 20, 2024
Andalusia and Madrid have positioned themselves as the autonomous communities that face the greatest risk of breaching the European Union (EU) spending rule for 2024, stipulated at 2.6%. This same scenario occurred in 2023, when both regions significantly exceeded this limit, reaching alarming figures that exceeded 13%. The Independent Authority for Fiscal Responsibility (AIReF) It is estimated that these communities will repeat this behaviour in the current year.
However, both the Government of Juan Manuel Moreno Bonilla like that of Isabel Díaz Ayuso Not only have they shown a lack of action to reverse this situation, but, on the contrary, they have implemented tax reductions for large fortunes.AyusoIn particular, it has targeted spending, allocating disproportionate amounts to “gifts” to millionaires , prompting criticism from the opposition.
According to reports provided by the Ministry of Finance , in 2023 the Community of Madrid increased its spending by 12%, far exceeding the spending rule established by the UEThis figure places it in second place in the spending ranking, only surpassed by Andalusia, which reached 13.4% in the same period. With a maximum limit of 2.6% for the current year, the forecasts are worrying.
The portfolio led by the socialist María Jesús Montero The increase in spending in Madrid has been linked to the sharp rise in the cost of debt, which is reported to be 50% higher than the previous year, representing an additional 400 million euros, reaching a total of 1.2 billion euros in payments to creditors. This increase occurs in the context of an increase in interest rates by the European Central Bank.
In recent statements during the Debate on the State of the Region, Ayuso has promised improvements in infrastructure and public services, although this coincides with the announcement of new tax reductions that raise doubts about fiscal viability. AIReF has warned of a possible “risk of non-compliance” with the new limits established by the UE by 2024, warning that “eligible spending could increase by more than 5%.”
A similar situation in Andalusia
In Andalusia , the most recent report of the AIReF suggests that the community could reach a deficit of 0.2% of the Gross Domestic Product by 2024, in addition to closing the year with a public debt of 19.6% . This situation shows that the community also presents a risk of non-compliance with the spending rule.
The data indicate that eligible expenditure in Andalusia in 2023 increased by 13% and, projecting that figure, it is estimated that 2024 will see a further increase in expenditure that will exceed the 2.6% limit. In this regard, the debt-to-GDP ratio in Andalusia is estimated to close the year at 19.6%, a slight decrease from 19.8% in 2023. This improvement is mainly attributed to the expected GDP growth.
As both communities face these warnings, adequate reforms are not being implemented. For example, Ayuso has applied full or partial bonuses on taxes such as the Wealth and Inheritance Tax , thus favouring the wealthiest citizens. While during the Debate on the State of the Region, she announced a new series of tax reductions that will entail a cost of more than 6 billion euros for the public coffers.
These reductions include a reduction from 25% to 50% in the Inheritance Tax bonus between close relatives and the extension from 35 to 40 years of age of the maximum age to access deductions in the Personal Income Tax for renting a home. A 100% bonus is also planned for donations of less than 1000 euros and the elimination of the formal requirement of a public document to apply the existing bonuses.
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