Government approves General State Budget for 2017

Moncloa Palace, Madrid

The Council of Ministers approved the Draft General State Budget Act for 2017 to be submitted to Parliament, which has the fundamental aim of bedding down economic growth and sustaining the public finances.

The Minister for the Treasury and Public Function, Cristóbal Montoro, explained that the public accounts place great emphasis on social spending and are committed to stable public employment and quality services. "They are an economic policy programme so that the rest of the public authorities can meet their deficit target and allow Spain to exit the excessive deficit procedure of the European Union in 2018".

Cristóbal Montoro highlighted that the Spanish economy is growing and has the ability to access financing. "We are a sufficiently competitive country and in order to maintain the ability to access financing, we need to continue reducing the public deficit to hit the target of 3.1%".

Revenue and expenditure

In his presentation of the Budget, Cristóbal Montoro highlighted that Spain is returning to revenue levels of a decade ago. "In 2017, we aspire to see total tax revenue stand at 200 billion euros, which is the figure the public authorities posted 10 years ago". According to the minister, the Tax Agency figures published on Thursday reflect a 6.7% increase in revenue in the year to date.

Pool Moncloa/J.M.CuadradoCristóbal Montoro also argued that "a good portion of the economic growth" is due to the "steep fall in taxes" in the years 2015 and 2016. "The total figure for the reduction in Personal Income Tax - 9.3 billion euros - and in Corporate Income Tax - 3 billion euros - gives a cumulative total of 12.31 billion euros".

As regards State expenditure, the minister pointed out that the Draft Budget maintains the budget that was finally executed last year. "It is in line with the correction to the public deficit based on us having higher revenue and very similar spending to that which was finally executed in 2016".

Social Budget

Cristóbal Montoro underlined that the public accounts assign the regional authorities an additional sum of 5.39 billion euros, increase the allocation to the system of justice by 7.6%, provide 100 million euros more in long-term care, a 7.5% increase in grants and remedial teaching programmes and 5.5% more for active employment policies. The fight against tax fraud also receives an additional 100 million euros.

The minister also said that "we must legally enable the State loan to the Social Security system to correctly pay pensions on time".

Public Employment Offer

The Minister for the Treasury and Public Function claimed that the Budget improves public employment since it incorporates the approval of the Public Employment Offer for 2017, which has a 100% staff replacement rate.

He also recalled that the government and social stakeholders have reached an agreement to reduce temporary employment from 20% to 8% in the next three years, which will allow 250,000 jobs to be filled that are presently covered by temporary workers, principally in the fields of education and healthcare. He also confirmed that public worker salaries will rise by 1%.

Public employment for teachers, servicemen, police officers and Guardia Civil officers

Pool Moncloa/J.M.CuadradoThe Council of Ministers approved a Royal Decree-Law approving the public employment offer in the fields of teaching, both at university and other levels, the armed forces, the State law enforcement agencies and police forces dependent upon regional governments for 2017.

Cristóbal Montoro highlighted that the employment offer is being brought forward in these sectors to foster their operation, and, in the case of teachers, to be ready for the start of the academic year.

Sustainable growth and lower unemployment

In the presentation of the macroeconomic scenario on which the Draft Budget is based, the Minister for Economic Affairs, Industry and Competition, Luis de Guindos, stressed that these are "very prudent" forecasts and more moderate than those to be presented by private analysts in the coming weeks.

The government foresees that the Gross Domestic Product will increase by 2.5% in 2017, with a greater contribution from the foreign trade sector. Luis de Guindos pointed out that this will be the second year in a row in which external demand contributes to economic growth, something that has not happened in the last 20 years and which "clearly shows the quality and, above all, the sustainability of this growth". The minister also highlighted that the most dynamic item will be export of goods and services, which shows "that we are a competitive economy".

Pool Moncloa/J.M.CuadradoAccording to the government forecasts, 2017 will also be the fifth straight year in which Spain posts a surplus in the current account balance. According to the minister, this means that, apart from "much more lasting" growth", external debt has been reduced by some 85 billion euros in those five years.

In terms of the evolution of the labour market according to the Labour Force Survey (Spanish acronym: EPA), the government forecasts the creation of 506,000 jobs, thus giving a total figure of more than 19 million people in work. The unemployment rate will fall by two points to 16.6%, more than 10 points lower than the maximum rate recorded at the start of the year 2013 and the lowest level since the start of the crisis.

Appeal against Catalan Budget

The Council of Ministers asked the President of the Government to lodge an appeal against the unconstitutional nature of certain provisions of the Budget Law of the Regional Government of Catalonia for the year 2017. The Vice-President of the Government and Minister for the Presidency and for the Regional Administrations, Soraya Sáenz de Santamaría, pointed out that the controversy specifically surrounds Additional Provision 40 and three budget items "relating to popular processes and consultations and citizen participation processes".

The Vice-President of the Government explained that the government received the report issued by the Council of State on Thursday that backs the appeal being lodged, on the grounds that this budget violates national sovereignty and the State's exclusive competence on the subject of referendums. In its appeal, the government will also ask the Constitutional Court to automatically suspend the rules under challenge and if it agrees, to personally notify the President of the Regional Government of Catalonia and the members of the regional government, among others, as well as those in charge of authorising and carrying out budget performance actions.

Pool Moncloa/J.M.CuadradoSoraya Sáenz de Santamaría recalled that the Statutory Guarantee Council of Catalonia pointed out that the additional provision that regulates the resources to call a referendum was unconstitutional and that, when the Regional Parliament of Catalonia approved two amendments to the rule, the institutional lawyers indicated that neither of these resolved the problem of its unconstitutional nature. The actions by the Regional Government and Regional Parliament of Catalonia "are leading them to lose all form of international protection or cover", stressed the Vice-President of the Government.

She also reiterated the government's interest in engaging in talks within the confines of the Constitution and the law. In this regard, she quoted the example of the Rodalies Plan (the commuter railway transport system in Catalonia), whereby the President of the Government has called for "contacts to be stepped up" to expedite its start-up.

Canary Island Economic and Fiscal Regime

The Council of Ministers approved the Draft Bill amending the Canary Island Economic and Fiscal Regime. Soraya Sáenz de Santamaría explained that the fiscal part of this regime, which takes into account the distance and island status of the Canary Islands, was modified in 2014, and the government has now agreed the economic part of the reform with the regional government.

The Vice-President of the Government pointed out that the economic regime will be based on the status of the Canary Islands as an outermost region. On the matter of transport, the rule contains a 50% discount for individuals, both in direct journeys between the islands and the mainland and between different islands - and 70% of the effective cost of sea and land transport of goods between islands and also between the islands and the mainland or the European Union.

Pool Moncloa/J.M.CuadradoThe Annual Employment Policy Plan will cater for the special difficulties to find work in the Canary Islands, and will also establish study grant programmes. The changes also include measures on tourism, energy, waste management, water, agriculture and regional incentives.

The Minister for the Presidency and for the Regional Administrations pointed out that the text will now be submitted to the Regional Parliament of the Canary Islands to prepare its report and thus approve a draft law to be submitted for its passage through Parliament "as soon as possible because we want it to be pushed through quickly".

Other agreements

The Council of Ministers agreed to allocate 800 million euros in loans to finance R&D business projects, within the framework of the State Scientific and Technical Research Plan. The main aim is for Spanish companies to become more competitive by generating knowledge, technology and innovation designed to improve processes and to create technologically advanced products and services with greater added value.

In the field of energy, the government established a new call for proposals for the assignment, by auction, of the specific remunerative regime for renewable energy facilities. This must be new and located on the mainland to take part in the auction. According to the Government Spokesperson, Íñigo Méndez de Vigo, the measure is framed within the European target set for Spain of reaching 20% of renewable energies out of the final energy consumption by the year 2020.

Pool Moncloa/J.M.CuadradoThe government approved a draft law to incorporate the EU Directive on the alternative resolution of litigation on consumer matters into Spanish law. The aim is to facilitate out-of-court solutions to conflicts that consumers may have with business owners established in any Member State of the European Union. The government, pointed out Íñigo Méndez de Vigo, will request its passage through Parliament via the fast-track route.

Lastly, the Council of Ministers updated the interest rates on loans on subsidised housing. With regard to the previous revision, the interest rates will be lowered for the 2002-2005 and 2005-2008 Housing Plans, while they will be maintained for the 1996 Programme under the 1996-1999 Housing Plans. A total of 267,605 families will benefit from this reduction; the annual average reduction in the quota will be between 25.20 and 29.64 euros for the 2002-2005 Housing Plans, and 57.72 euros for the 2005-2008 Housing Plan.

Brexit

The Minister for Foreign Affairs and Cooperation, Alfonso Dastis, presented the Council of Ministers with a report on the lines of action of the European Commission in light of the United Kingdom's exit from the European Union.

The Government Spokesperson, Íñigo Méndez de Vigo, explained that the first part of the negotiation will involve the United Kingdom's exit from the EU and then its relations with the EU. During this first phase, he specified, "the United Kingdom as a whole will leave the European Union, with all of the territories that form part of its whole or over which it has some type of sovereignty or jurisdiction". The idea is for its exit to be carried out in an orderly fashion, prejudicing neither British nor EU citizens, he added.

Íñigo Méndez de Vigo also mentioned that the lines of action include a specific provision on Gibraltar, which establishes that no agreement between the European Union and the United Kingdom can be applied to this territory without the agreement of the United Kingdom and the Kingdom of Spain.

Current affairs

Pool Moncloa/J.M.CuadradoWhen asked about the government's opinion on the latest decisions taken by the President of Venezuela, Nicolás Maduro, the Minister for Education, Culture and Sport and Government Spokesperson, , called for "the situation to change" and "for conditions of normality to be re-established, because what "we want for Venezuela is the same as what we want for Spain". "When the division of powers is broken, democracy is lost", he stressed.

As regards a potential reduction in VAT for cinema activities, Íñigo Méndez de Vigo recalled that this activity already enjoys subsidies, such as "the tax breaks for film producers and the increase of up to 70 million euros in its new law on financing". A possible reduction in the tax "is a commitment to the future" of the government, which will be tackled "when the path of growth so allows", added the minister.