Fiscal progress despite budget stalemate: Spain’s deficit contracts amid political gridlock
Fiscal progress
Fecha: noviembre 2025
Santiago Lago Peñas
SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º6 (November 2025)
Spain’s central government remains mired in budgetary paralysis, with the 2023 General State Budget still in force and no new draft budget likely to pass given the current political fragmentation. Nevertheless, fiscal performance in 2025 has been encouraging: as of August, the deficit fell by half a percentage point of GDP, driven by a 10% increase in tax revenue, outpacing nominal GDP growth. The improvement stems largely from favourable cyclical conditions, including strong job creation and the expiration of temporary tax relief. Looking ahead, AIReF and the Bank of Spain expect further fiscal consolidation in 2026, projecting deficits of 2.0%–2.3% and a debt ratio near 100% of GDP. However, underlying structural imbalances remain, and most of the deficit reduction has been cyclical rather than permanent. From 2027 onwards, Spain will likely face pressure to curb expenditure growth and introduce structural reforms to comply with new EU fiscal rules. Sustaining fiscal discipline amid political uncertainty will require difficult choices, particularly in defence, housing, and public investment.