Spending rule

economic-dictionary

The spending rule, also called the spending ceiling, is a way of controlling the budget balance of the State, so that public spending remains within the margins of the usual income expected in the legislature.

In other words, the objective is that the increase in spending has its reference in the medium-term growth of the gross domestic product (GDP).

In this way, a temporary increase in production, for example, due to an expansionary phase of the cycle, is prevented from causing an increase in spending that cannot be assumed in the future when that phase ends.

Regulatory development of the spending rule

The rule that regulates this spending ceiling is Organic Law 2/2012 on Budgetary Stability and Financial Sustainability. Every year, in the first semester, the Council of Ministers sets the spending targets for three years and does so taking into account the report of the Council for Fiscal and Financial Policy of the Autonomous Communities and the National Commission of Local Administration.

Within the objectives, the limit of non-financial spending is set, that is, the one that excludes interest on the debt and that on the public debt itself. The latter must take into account the provisions of European regulations on budgetary stability.

The European System of Accounts. Computable expenses

The computable expenses are established in chapters 1 to 7 of the regulations of the European System of Accounts (SEC). It also includes possible exceptions and expenses that could be added if necessary. Keep in mind that the Social Security Agency is not subject to this spending rule.

The SEC was approved by Regulation (EC) 549/2013, relative to the European System of National Accounts and made it possible to homogenize the national accounts of the member states in order to be able to compare them. In this way, the establishment of convergent criteria in the Monetary Union or the management of financial aid and structural funds of the European Union is sought.

The reason of to be. Avoid crises

Ultimately, what is sought with the spending rule is to avoid budgetary imbalances similar to those that occurred in the years prior to the 2008 crisis. Especially at the level of local entities, in several cases these raised to current spending those that financed with exceptional income due to construction activity. When the bubble burst, many city councils found themselves with a deficit situation that was difficult to solve, as this income no longer existed.

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