The Independent Authority for Fiscal Responsibility (AIReF) recently published its European Union (EU) fiscal governance reform analysis. This reform, which came into force in April 2024, introduces important changes to modernise fiscal rules and adapt them to the current economic environment, directly affecting economies such as our country’s.
Following its entry into force last April, September is the date agreed for member states to submit their medium-term fiscal plans.
Among the new framework’s main features, AIReF highlights three key aspects: a long-term approach focused on the sustainability of public debt, using a single variable to manage fiscal adjustments, and introducing incentives to encourage investment and reforms. In addition, escape clauses have been created to allow more flexibility for states in exceptional situations.
What does the tax reform intend to change?
As AIReF points out, the European Union’s economic governance was established in 1992, and since then, the factors in the countries have, in general, been changing. Despite this, the reform has been permeated by a macroeconomic environment that is very different from the current one. As can be seen in Spain or any other EU country, there is an ageing population, fewer births, more climatic needs, and so on and so forth.
Nevertheless, AIReF has set out a series of recommendations that should be taken into account.
AIReF’s recommendations for the new fiscal framework
These points aim to ensure that Spain meets its European commitments and maintains the sustainability of its public finances in the long term:
- Publish the European Commission’s fiscal reference path: This will enable all the general government and other institutions to be aware of the fiscal adjustment framework within which they must operate.
- Transparency in the negotiation with the European Commission itself: It is proposed that the negotiation process be transparent and that the specific technical analyses for Spain be published prior to the approval of the fiscal plans, thus facilitating a more precise diagnosis of the adjustment needs.
- Dialogue with all Public Administrations: It is recommended that dialogue with Public Administrations should begin immediately in order to reach a consensus on the distribution of fiscal objectives, ensuring that European commitments are fulfilled.
- Reform of the Spanish fiscal framework: AIReF suggests that the process of reforming the national fiscal framework should be tackled jointly with the reform of the territorial financing system and the extraordinary financing mechanisms, as a comprehensive solution to these challenges.
- Medium-term fiscal planning: The estimated investment needs of the Spanish economy and the measures envisaged to address them should be made explicit, allowing for comprehensive planning that responds to the country’s challenges.
These are not the first recommendations made by the Independent Authority, as was already the case with the report on the 2023 Rebalancing Plan on the need to involve all institutions, relevant national actors, and representatives of the different territorial levels in the design of the new structural fiscal plans.
In this way, the aim is to ensure consistency and coherence of the national framework concerning European rules.
If you are a foreign company with operations in Spain, these changes may also affect your regulatory compliance. At LEIALTA, we have a detailed understanding of the requirements of the new Spanish tax framework and the complexities of operating in an ever-changing European environment. Our team is ready to offer comprehensive advice to ensure your business complies with all local and European tax regulations, minimising risks and facilitating your activity in the Spanish market. Contact us for a personalised consultation and confidently navigate the new tax regulations!
