The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, took part today in the presentation of the report by Fedea and the General Council of Economists on structural issues in the Spanish economy. Cristina Herrero gave a speech in which she stressed the importance of tackling this type of issue now that fiscal rules have been reactivated and a new fiscal governance framework has come into force. She highlighted three structural issues that AIReF considers particularly important for ensuring the sustainability of public finances: the need to guarantee the credibility of the new fiscal framework, a commitment to economic growth and promoting the quality of public finances.
Specifically, Cristina Herrero stressed the importance of recovering the credibility the previous fiscal framework lost due to its complexity and arbitrary application. In her opinion, the new framework offers the opportunity to recover this credibility by emphasising sustainability, taking into account the situation of each country, and using a more transparent supervisory system. However, its effectiveness will depend on genuine national ownership by countries, on having a national fiscal framework that is consistent with the European fiscal framework and on capitalising the assets of Independent Fiscal Institutions (IFIs) such as AIReF to contribute to the implementation of these strategies.
In order to promote national ownership in a country as decentralised as Spain, Cristina Herrero considered the consensus and participation of all tiers of government in the design of the Structural-Fiscal Plan to be “crucial”, which will be the main element of each country’s fiscal commitment to the new regulations. In this regard, she recalled that the Autonomous Regions and Local Governments control almost 50% of expenditure in Spain and that this Plan will remain fixed for a period of four years and can only be modified in exceptional circumstances. She also stressed that the regulation itself encourages countries to share these plans with all stakeholders involved, including national parliaments. However, although the presentation of the Plan is close and all the General Government authorities are already drawing up their budgets, the necessary coordination and consensus has not yet been achieved. “Valuable time has been wasted”, she said.
Cristina Herrero also stressed the need for a credible national fiscal framework that is coherent with the European fiscal framework. In her opinion, the national framework was already inconsistent with the previous framework, but these inconsistencies have been amplified after the entry into force of the new framework, which is why a reform focused on the revision of the medium-term vision, the system for setting targets and coordination mechanisms (the Fiscal and Financial Policy Council and the National Commission of the Local Administrations) is necessary.
She also highlighted the role that IFIs such as AIReF can play in contributing to the strengthening and credibility of both the European fiscal framework and the national fiscal framework, acting as a link between the two. Specifically, AIReF is very familiar with the new European fiscal framework and has an in-depth knowledge of the national situation. It also has the necessary technical capacity and is ready to contribute in this regard. AIReF has already gauged the possible adjustment forecast needed to comply with the new rules and is awaiting the information that the European Commission has already shared with Member States on the guidelines it has provided to each country. In addition, Cristina Herrero recalled that the reform consolidates and strengthens the IFIs, assigning them a new function of analysing the consistency, coherence and effectiveness of the national framework, sustaining the functions of ex-ante analysis and reinforcing the ex-post functions of deviation analysis.
AIReF’s President also referred to the second structural element that AIReF considers fundamental for ensuring the sustainability of public finances: the importance of committing to economic growth. In this regard, she recalled that the reform of the fiscal rules provides an incentive for reforms and investments to boost growth by offering countries a possible extension of the adjustment period to comply with the regulations. She also stressed the importance of growth in sustainability and recalled the Opinion on the long-term sustainability of public finances published by AIReF in 2023, which quantified the positive effect of an increase in potential growth on variables such as spending on pensions, the public deficit and public debt.
Lastly, Cristina Herrero referred to the need to guarantee the quality of public finances as the third critical structural issue to ensure sustainability and highlighted the need to promote evaluation to achieve this. In this regard, she reviewed the work that AIReF has been carrying out for the last six years with evaluations that aim to be useful for policymakers by identifying findings and formulating proposals to improve their effectiveness and efficiency. Specifically, she referred to the spending review processes known as Spending Reviews and the evaluations published or underway for eight Autonomous Regions. In all of them, AIReF has evaluated or is evaluating major policies such as education, infrastructure, healthcare and active employment policies, among others.
