The EU will return to the austerity policies in 2024, as the tax rules will come back into effect

May 02, 2023
The tax rules of the Stability and Growth Pact (SGP) that were suspended as a result of the COVID-19 crisis are about to come back into effect. The proposal by the European Commission for the new economic governance framework will come into force in 2025 and it maintains the intervention of the policies by governments that do not meet the tax rules.


The COVID-19 crisis caused the European Union to temporarily suspend the Stability and Growth Pact (SGP) in order for the countries to be able to increase their public expenditure above that established by this regulation (3% deficit and 60% of debt over the GDP).

The European Commission has decided to bring an end to the party and it has notified the Member States that they will have to tighten their belts again from 2024 onwards. After four years in which Europe has relaxed, austerity is now back, with the famous tax rules that have caused so much pain since the 2008 crisis. They are back in a hybrid way, with the rigid current SGP, but incorporating new elements from the reform of the tax rules that the European Commission has proposed and that foreseeably will come into effect from 2025 onwards.

And the fact is that after the austerity policies adopted following the 2008 crisis caused a rupture between the indebted countries in the south and the hawks in the north. Greece was the most extreme case, the country to which the most aggressive steps were applied and that was about to leave the EU. The European institutions were aware of the failure of these policies and that the European project was in danger. For this reason, the method for tackling the COVID-19 crisis was changed. Examples of this were the suspension of the SGP, the Next Generation funds or the European Pillar of Social Rights. However, none of these policies mean a structural change. All of them are subject to conditionalities that allow the Neoliberal European project to be able to continue developing. And the reform of the tax rules is following the same route.

The reform of the EU’s economic governance framework shows a clear continuity. The SGP’s references continue to be the same (3% of public deficit and 60% of public debt over the GDP) and, although it is true that countries will have a four-year deadline (extendible in 3) to decrease their debt and the specificity of each country will be taken into account, the truth is that the tax and budgetary policies of countries that have a high debt ratio will be intervened. This will be articulated through the fiscal and structural plans, which will be evaluated by the European institutions on an annual basis and will impose sanctions (economic, reputational and withdrawal of European funds) to the countries that do not comply with what has been agreed.

The mechanism will be easy: Europe is going to establish an expenditure rule (a percentage above which the budget for each institution is not going to be able to be increased), in this way restricting the budgetary expenditure of all the institutions, whatever their revenue. It does not matter if the year ends with a surplus, as we have just seen with the Autonomous Community of the Basque Country and Navarra, no more may be spent. In spite of the fact that the deficit is nothing more than a simple subtraction between revenue and expenses with a negative result, the reform only limits the expenditure, it does not tackle the public revenue, nor does it set forth any type of tax reform that allows quality public services to be guaranteed.

The Spanish State closed 2022 with a public debt of 115%, almost double that established by the SGP. Therefore, it will have to present a national tax plan and the European Commission will force it to take austerity steps to control public spending, until the debt starts to decrease. And this will have the same consequences for the budgets of the Autonomous Community of the Basque Country and Navarra.

As occurs with most European policies, the decision-making areas are drawing further away from our territory. The European Commission controls the States and within the Spanish State, Madrid is in charge of turning the tap on or off, while the institutions in the Basque Country and Navarra assimilate this governance model without complaint.

Over the past four years, the Basque Government and that of Navarra have not taken advantage of the temporary suspension of the SGP to increase expenditure and improve the public services and social benefits. From 2024 onwards, they will have an excuse for the lack of political willingness: Europe, this entity that gives us so much with the European funds, is not going to allow us to spend more.