The new Balearic government plans various tax reductions, but one of Spain's most influential economic think tanks, Fedea (the Foundation of Applied Economics Studies), is warning that "embarking on significant tax reductions and spending on projects of doubtful social profitability will clearly damage the sustainability of regional public finances".
The Balearic government, as with other regional governments in Spain, is being affected by increased interest rates. For payments to banks, it is estimated that interest will rise from 90 million euros this year to 216 million in 2026. Fedea adds that this increase in interest payments will mean that public policies are "less optimal".
Nevertheless, the think tank is optimistic that strict compliance with deficit targets and the use of the budget surplus for debt repayment will mean that by 2026 the islands' global debt figure will be more or less what it is expected to be at the end of 2023 - around 8,900 million euros.
Roughly half of the Balearic debt is owed to the Spanish government. It shot up during the financial crisis because of the assistance that was needed for regional finances, an increase that was overseen by the last Partido Popular government in the Balearics. Over more recent years, the debt has increased relatively slowly.
There have been demands for the debt owed to the Spanish government to be cancelled, in part if not in whole. Spain's finance minister, María Jesús Montero, is studying the possibility of cancelling part of Catalonia's debt in the framework of negotiations with Catalan parties for the investiture of Pedro Sánchez as prime minister. The Balearic finance minister, Antoni Costa, has said that the Balearic government will demand the same treatment as Catalonia if there is agreement on debt cancellation.
As it stands, Balearic debt was 26.6% of GDP last year. Fedea forecasts that this will drop to 22.2% by 2026. Valencia, 38.3%, will continue to have the highest debt percentage; Madrid (11.3%) and the Basque Country (11.4%) the lowest.