Spain's fiscal watchdog demands over 10 billion euros in spending cuts to meet 2026 national rule

Spending growth nearly double the permitted rate

Spain's Independent Authority for Fiscal Responsibility (AIReF) raised its forecast for net primary expenditure growth in 2026 to 6.4%, almost double the 3.5% reference rate set by the national spending rule. The update, published on Wednesday in its report on budget execution, public debt and the spending rule, marks a sharp deterioration from the 5.8% projected in May. Revenue growth is estimated at 6%, leaving an annual deviation equivalent to 1.1% of GDP. Cumulatively, spending has already expanded by 16.5%, far above the 13% agreed in the Medium-Term Fiscal and Structural Plan.

If you want to comply with the medium-term fiscal and structural plan, either measures are taken or the variation in net primary expenditure net of revenue measures will not be met.

Size of the required adjustment

The authority calculates that meeting the national spending rule this year would require additional measures worth 0.6% of GDP, an adjustment exceeding 10 billion euros. If implemented, the overall public deficit would fall from the currently projected 2.6% of GDP to 1.9%, and the growth rate of net spending under the European framework would drop to 4.7%. The accumulated control account, which tracks fiscal deviations vis-à-vis Brussels, would move close to zero, providing a larger safety margin. AIReF also revised its GDP growth forecast upward by three tenths to 2.5% for 2026, driven by strong domestic demand and demographic trends, but warned that this will not be enough to offset the spending overrun.

Wide overshoot across government tiers

The central government is the main source of risk, with projected computable spending growth of 8.8%, more than five points above the legal limit. Autonomous communities are expected to see a 4.2% increase, also above the 3.5% reference, despite an improvement in their balances thanks to higher earmarked transfers for dependency care. Local corporations are the only subsector on track to comply, with growth of 2.2%. AIReF noted that most regions required to submit economic-financial plans after breaching the 2025 rule have presented documents with deficiencies, lacking additional corrective measures for 2026 and 2027.

Clash between national and European frameworks

While the national rule demands immediate action in 2026, compliance with European requirements could be postponed thanks to safeguard clauses for defence spending and energy measures, provided Brussels accepts the maximum of 0.3% of GDP notified by Spain. However, AIReF stressed that delaying adjustments would merely concentrate the burden in 2027 and 2028, when the current government's term ends and general elections are due. The authority urged the finance ministry to define a medium-term fiscal strategy and to present the 2027 state budget on time.

Whether the measures are taken in 2026, 2027 or 2028, if they are not taken, the commitments will not be met.

Regional deficits and plans under scrutiny

AIReF reviewed the economic-financial plans of seven regions that failed the 2025 spending rule: Andalusia, Cantabria, Castilla-La Mancha, Catalonia, Extremadura, Galicia and Madrid. It found that, in general, the plans do not contain enough measures to keep computable spending growth within the reference rates and, in some cases, suffer from information gaps. For Castilla-La Mancha, the risk of non-compliance is especially high in 2027, as improved state dependency transfers are offset by recently adopted personnel measures. Andalusia's plan was criticised for not including the impact of a horizontal career agreement for civil servants or announced tax cuts.