safety, upkeep and quality. Priority is being given to terrestrial transport: investments will concentrate on
high capacity motorways networks in the framework of the future Infrastructure and Transport Strategic
Programme. The budget allocation for road infrastructure in 2005 is 7,5% higher than in 2004. In relation
to rail infrastructure, particular l attention is devoted to high-speed rail networks and freight transport
will be fostered.
Education
Another qualitative change in public spending relates to the educational policy, with a state budget
allocation 6% (10.5% increase in grants) higher than in 2004, raising its relative weight in the total
budget. The regional authorities have the bulk of the power in this area and they directly manage
education spending in their territories. Action by the central administration includes most notably an
increase in the funds for grants and allowances within the Educational Promotion Programmes, which
represent 56% of the total and have increased by 10.5% with respect to 2004.
4. Procedures and institutions responsible for implementing those priorities.
Spanish national experience
The Spanish commitment on budgetary discipline finds its institutional expression in the legislative
corpus comprising the Laws of Budgetary Stability and some implementing laws.
Law 18/2001 of 12 December of Budgetary Stability (LBS)
The law of Budgetary Stability establishes the general framework for the financial stability in Spain. It
states that the public sector and its different agencies should close their books in balance. Deficits are
only contemplated in exceptional circumstances and when they do arise, the agent responsible must
present an adjustment plan for restoring budgetary equilibrium within three years at most. The law lays
down four principles as the cornerstones of fiscal policy design:
- Transparency: full and timely information on the financial position of all government branches,
with records of the financial flows between each; - Fiscal co-responsibility: each branch of government must close the year in balance or surplus. In
the event of deficit, an action plan will be presented setting out remedial measures. - Limits on the growth of central government spending: the Law stipulates the preparation of multi-
annual budget projections, so management efforts are focused on mid-term efficiency. This
implies the setting of an annual ceiling on spending growth.
After two years applying the LBS some shortcomings arose relating to the non-adaptability of the
stability principle to the economic cycle, the lack of incentives to the Territorial Government to run their
accounts in equilibrium, and difficulties monitoring the adherence of the Territorial Government to the
fiscal rules.
- Firstly, the rigid nature of the stability principle does not permit the formulation of a counter-
cyclical fiscal policy. According to the stability rule, every year and every institution within the
General Government should formulate and run the budget in equilibrium without paying attention
to the cyclical situation of the economy. Meanwhile during the upswing of the cycle it could be
advisable to cut expenditures to get equilibrium in the fiscal accounts. Reducing expenditures to
increase revenues during the downswing of the cycle could decelerate economic activity. - Secondly, even though the Central Government fixes a three-year stability objective by for the
overall General Government, there are no measures to warrantee the attainment of this objective at
the regional level.