In this respect, in the opening months of this year, the Government set in train various regional and local government support mechanisms in order to smooth the refinancing of their existing debts or payment to trade creditors. The financing mechanisms agreed also require fulfilment of adjustment plans. It is now crucial to insist on strict compliance so that this type of aid does not provide inappropriate incentives. The consolidation strategy must, finally, be completed while keeping in mind the mediumand long-term factors affecting public finances, particularly those deriving from the pressure  6  BIS central bankers’ speeches  exerted by population ageing on certain items of expenditure. In this connection, following the enactment in July 2011 of the Social Security Reform Law, an appropriate definition of sustainability is needed as soon as possible so that the system’s parameters may be automatically adapted to demographic changes. In short, the current budgetary imbalance has become one of the main obstacles to growth of the Spanish economy. Correcting it is urgent and unavoidable. What is thus needed is a fiscal adjustment strategy based on commitments made at European level. This strategy has to be accompanied by a strengthening of the national budgetary framework, as reflected in the constitutional reform, and by the application of the medium and long-term reforms that enable the challenge of population ageing to be addressed.
It is essential to prevent these risks from materialising by ensuring a meticulous and rigorous budget outturn allowing budget deviations to be detected in time and any required remedial action to be taken. Should this be necessary, additional adjustments would have to be made in current expenditure, given that the freedom of action in relation to capital expenditure has shrunk enormously, and new tax measures would have to be taken, preferably in the area of  BIS central bankers’ speeches  5  indirect taxation, which has fewer distorting effects on growth and the allocation of resources and where the tax burden in Spain is lower than in other developed countries. Looking ahead, moreover, it cannot be ruled out that the temporal tax increases applied may have to be replaced in time by measures of a permanent nature. Simultaneously, it is important that the process of budgetary consolidation be accompanied by a strengthening of the national budgetary framework, so as to allow governments at all levels to meet their commitments. In this respect, the reform of the Constitution in September 2011 so as to include the deficit and debt ceilings set at European level, which was subsequently implemented in the draft budgetary stability law, was designed to meet this need and is fully consistent with the recent EU governance reforms.