Strict spending limits ahead
Fiscal program under discussion with EU will see few opportunities for handouts until 2028
The new medium-term fiscal structural plan being negotiated with the European Commission will set strict spending increase limits from 2025-2028.
This will limit the government’s ability to dole out handouts, which were largely used these past two years to deal with the effects of global crises, but which, in less turbulent times, target specific constituencies in a bid for their votes.
Although the final plan will not be agreed upon until September or October, at the latest, the Commission has already provided guidance for the spending increase targets it wants: 3% in 2025, 3.1%-3.2% in 2026 and 2027 and 3% in 2028. Negotiations between the Commission and the Ministry of Finance are not expected to change those targets by much.
Not included in the Commission’s restriction is spending on debt service and on investment projects jointly financed with the EU.
At the General Accounting Office they believe that the spending caps are sufficient to finance certain programs already announced by the government, but not much else. For example, for 2025 the government has announced measures that involve extra spending, but mostly revenue loss, costing a total of €870 million. These measures include a 0.5% cut in social security contributions (cost: €215 million), the end of the special “occupation fee” for professionals (€120 million), and the permanent reimbursements of the special consumption tax to farmers (€100 million).
Of course, the Ministry of Finance constantly receives demands for extra expenditure, or revenue cuts. One has been a VAT reduction in the prices charged for cars traveling on ferries. Ministry officials respond that when they OK’d a VAT drop in passenger shipping tickets from 24% to 13%, costing the state €106 million in revenue, ticket prices did not change because the shippers pocketed the added revenue.
