Despite improvements in collection and regional financing, the fiscal position of the communities at the end of 2023 was worse than expected. More than half of the territories exceeded the deficit goal set at 0.6% of GDP, with some reaching double the established rate. The gap between regional income and expenditure stood at 0.91% of GDP, three tenths above the reference rate, according to budget closing data published by the Ministry of Finance.
The Tax Authority had estimated that the autonomies would comply with 0.6% through September, but final data showed a negative balance of 13,254 million euros. The first vice president, María Jesús Montero, highlighted record resources distributed to the communities since the pandemic but only five territories ended 2023 with a surplus. Some territories with larger deficits are part of the usual suspects such as Valencian Community, Murcia, and Andalusia.
Local corporations did not meet their surplus objective and closed the year with a negative balance. Social Security’s deviation was in line with expectations while interest payments also rose significantly due to changes in non-financial resources available to territories. The slow correction of regional deficits can be attributed to various factors such as changes in non-financial resources available to territories and salary hikes for civil servants leading to an increase in remuneration costs for employees.
Income from taxes saw increases in several categories; personal income tax stood out due to regional tax reductions which led to higher revenue for communities. However, despite these efforts, challenges remain for achieving long-term fiscal sustainability across regions due to disparities in regional deficits and deviations from targets that pose risks for financial stability both within communities and at the central government level.
To address these challenges, it is crucial that efforts are made towards addressing disparities and ensuring long-term fiscal sustainability across regions through collaborative efforts between local governments and central authorities. This may involve implementing new policies or revising existing ones that aim towards reducing deficits while ensuring equitable distribution of resources within each region.
Furthermore, there is a need for greater transparency in budgeting processes across all levels of government which will enable better decision making based on accurate data and help avoid future budgetary surprises.
Overall, while progress has been made towards improving fiscal position at community level; more needs to be done to achieve sustainable financial stability across all regions in Spain through collective action and greater transparency in budgeting processes.
