Despite improvements in collection and significant regional financing resources, the fiscal position of communities at the end of 2023 was worse than expected. More than half of the territories exceeded the deficit goal of 0.6% of GDP, with the largest deficits occurring in Valencian Community, Murcia, Extremadura, Catalonia, Castilla-La Mancha, and Andalusia. The gap between regional income and expenditure stood at 0.91% of GDP, three tenths above the reference rate.
As the year progressed, the deficit grew rapidly, reaching 0.91% in the last quarter. Without system settlements, it would have been much higher. Only five territories ended 2023 with a surplus while others struggled to meet deficit targets. In order to maintain public services in regions like Valencian Community, Murcia, Andalusia, Castilla-La Mancha and Catalonia a substantial effort is needed.
The slow correction of the regional deficit can be attributed to several factors including changes in non-financial resources available to territories. While tax revenues increased significantly due to increases in income and wealth taxes, expenses also grew resulting in a deficit of 13 billion euros.
Furthermore, non-financial transactions such as transfers received from other public administrations have influenced the evolution of the deficit.
The dynamics of employee remuneration and interest rates also play a role in shaping the fiscal position while subsidies for specific products and services are another contributing factor.
Currently fiscal rules are suspended but efforts are being made to reduce the deficit to meet targets set by Brussels before they become unsustainable.
