The fiscal position of the communities at the end of 2023 was better than a year before, but worse than expected: more than half of the territories exceeded the deficit goal set, 0.6% of GDP, despite the improvement in the collection and the voluminous resources from regional financing. The largest deviations occurred in the Valencian Community, Murcia, Extremadura, Catalonia, Castilla-La Mancha and Andalusia, which reached double the established rate. They also did not comply as a whole. 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, which highlights how these Red numbers would have skyrocketed without the system’s settlements.
In the final stretch of the year, as usually happens, the hole has grown at a faster rate, jumping from 0.13% of GDP in the third quarter to 0.91% in the last, so much so that the Tax Authority estimated that the autonomies would comply with 0.6% with the data until September in hand. The final balance is negative at 13,254 million euros, somewhat less compared to December 2022 (15,119 million), thanks to an increase in income greater than that of expenses and despite the tax reductions undertaken by the majority of the communities , especially in personal income tax. Its impact, however, is not yet palpable on system resources.
The gap would be multiplied by two, according to national accounting data for the last quarter of the year, up to 24,490 million or 1.7% of GDP, if the impact of the liquidations of the financing system on the deficit were discounted, more of 11,000 million, and which are paid two years apart.
The first vice president and person in charge of the branch, María Jesús Montero, had already announced it last week in the presentation of the year-end budget execution, in which she highlighted two pieces of information related to the regional accounts: the record resources distributed to the communities since the pandemic and that only five territories ended 2023 with a surplus – Asturias, the Balearic Islands, the Canary Islands, Cantabria and Navarra.
Some of the furthest behind, with gaps greater than the average, are part of the usual suspects: Valencian Community, Murcia, Andalusia and Castilla-La Mancha, the communities worst treated by the financing system, which must make a greater effort to guarantee the same level of public services as the others. Among the most deficient are also Extremadura, which on the contrary is one of the autonomies that receives the most resources per capita from the model, and Catalonia, which is average.
The initial deficit target for the communities was even stricter, 0.3% of GDP. The autonomies that did not even meet the new goal, however, do not face sanctions or more severe controls on their accounts, because the fiscal rules are suspended. In other words, the 0.6% threshold was not binding, but the deviations recorded will imply a greater effort for this exercise, in which the goal to be met is a deficit of 0.1% and the budgetary tightness appears again.
Local corporations also did not meet their objective, a surplus of 0.1%, and closed the year with a negative balance of 0.09%. On the other hand, the deviation from Social Security, of 0.56% of GDP, was in line with what was expected. The central Administration endured the largest correction, of one percentage point, allowing the reduction of the Red numbers of all public administrations to 3.7% of GDP, compared to the 3.9% expected. This year, the Government must undertake a further cut to reduce the gap to the 3% required by Brussels.
Taxes, salaries and transfers
Various factors have influenced the slow correction of the regional deficit, such as the evolution of the non-financial resources available to the territories. These have gone from the 223,523 million registered in 2022 to 236,453 million in 2023, an increase of 5.8% that is explained, among other causes, by the increase in income obtained through taxation. However, the volume of non-financial jobs has also grown to 249,707 million, which causes the aforementioned hole of 13,254 million euros.
Returns via taxes stood at 86,818 million euros last year, 10,000 million more than those achieved in 2023. In this section, however, there are notable differences depending on each figure. While taxes on capital and on production and imports have fallen by 5.6% and 2.4% annually, respectively, taxes on income and wealth have skyrocketed with an increase of more than 20%, from 53,633 to 64,507 million euros.
Within this last heading, personal income tax stands out, with an increase in its volume of almost 21%, which translates into a total figure of 62,565 million, of which 55,541 million correspond to payments on account made by the State. It so happens that the income from this tax has grown in a year marked by regional tax reductions, something that is explained by the delay with which the disbursements made by the State to the territories operate, and which occur after the final settlement of the financial year in question, two years later. That is, it will be from 2024 onwards that the effects of the tax cuts implemented in 2022 will begin to be felt, when the inflationary crisis began.
In taxes, equity also stands out, although for the opposite reason, with income of 1,364 million, 7% less. Among other reasons, this is due to the regulatory changes made by several autonomous communities by setting bonuses on the tax rate of 50% and 100%.
Another section refers to non-financial jobs, in which headings such as transfers received from other public administrations stand out, which stand at 126,186 million (+3.3% annually). In this subgroup, the most representative are those received by the State, which reach 106,140 million (+2.5%). This evolution is due to the increase in payments received by the financing system, which went from 80,306 to 88,835 million. Of this amount, 80,498 million correspond to payments on account for 2023 and another 8,337 million correspond to the final settlement of the 2021 financing system —excluding personal income tax—.
These increases have been offset, in part, by the decrease in transfers received outside the system, which fell from 23,225 to 17,305 million euros from one year to the next.
Other striking indicators that influence the evolution of the deficit are the remuneration of employees, which shows a growth of 6% – up to 101,601 million – mainly due to the 3% salary increase for civil servants. Interests also stand out, which skyrocket by more than 70% to 6,468 million due to the rise in rates and its effects on loans from the Financing Fund to Autonomous Communities. Other points cannot be forgotten, such as subsidies for certain products and services, paid in part by regional governments. Among others, the 30% discounts on public transport stand out.