Government raises growth forecast and approves ceiling on State spending

Moncloa Palace, Madrid

The Council of Ministers revised the growth forecast of the Spanish economy that was sent to Brussels back in April as part of the Stability Programme, raising the rate of growth for this year from 2.7% to 3%, and for 2018 from 2.5% to 2.6%.

The Minister for Economic Affairs, Industry and Competitiveness, Luis de Guindos, claimed that "this is a very prudent revision, perfectly attainable and it will be very difficult" not to achieve this. In fact, the minister remarked that this is "very much lower than that being made by the rest of the analysts" and than "the market consensus".

Luis de Guindos highlighted that the export of goods and services represents the most dynamic variable of the Spanish economy, together with investment, and that "this is pushing growth up" thanks to factors such as enhanced competitiveness, the recovery of the European economy and the development of the exchange rate of the Euro.

The new macro-economic scenario forecasts a positive contribution from the foreign trade sector of around half a point, which will last for at least five years as from 2016. Moreover, it forecasts an increase in exports of close to or greater than 5% for the period 2017-2020, in other words, to stand at new record levels.

As regards internal demand, this will contribute to growth by more than two points during the period 2017-2020, which is compatible with low levels of inflation. Higher household income and job creation will maintain the figures for increased private consumption at close to 2.5% over the course of this period.

The minister highlighted that the new pattern of growth combines household demand with the contribution of net exports from the foreign trade sector.

Furthermore, Luis de Guindos remarked that we have enjoyed four years with a surplus in the current account of the balance of payments and that, if we meet the "prudent forecasts" of the government, we will enjoy "eight years with a surplus".

Fewer unemployed

Pool Moncloa/J.M. CuadradoThe Minister for Economic Affairs explained that the government's goal is to create more than 2 million jobs between the years 2016 and 2020, such that by 2019 there will be more than 20 million people in work, and by 2020, "we will have a higher level of employment than before the start of the crisis". "Spain has already recovered the level of revenue we had back in 2007 in the second quarter of this year, but we are still a long way off in terms of employment", he stressed.

As regards the number of unemployed, Luis de Guindos pointed out that this will fall by almost 1.7 million, which will amount to a fall in the unemployment rate of 7.5 points by the end of 2020.

The minister recalled that in 2013, the worst point of the crisis, unemployment stood at 27%. The government expects this to stand at just above 11% in 2020, which means the rate will have fallen by 16 points, in other words, a drop by more than half.

2018, turning point

The government approved the budget stability and debt target for the period 2018-2020, as well as the ceiling on State spending for next year, which is the starting point for preparing the General State Budget for 2018. The Minister for the Treasury and Public Function, Cristóbal Montoro, argued that these targets "are what the Spanish economy needs to continue driving growth and boosting job creation, which is what is improving the lives of Spanish families".

In terms of the stability targets, the deficit of the public authorities as a whole will fall from 3.1% of GDP this year to 2.2% in 2018, and hence Spain will meet the recommendations of the European Council and exit the excessive deficit procedure. Cristóbal Montoro stressed that this is "an absolutely crucial turning point", since Spain has exceeded the public deficit barrier of 3% for the whole of the last decade. "It is fundamental that no-one in Spain or in Europe doubts that we are going to meet this commitment", he said.

Pool Moncloa/J.M. CuadradoThe total deficit of the public authorities will continue to drop during the rest of the period: in 2018 it will stand at 1.3% of GDP and the following year at 0.5%.

The distribution of this deficit, pointed out the minister, has already been presented to the National Committee of Local Authorities and to the Fiscal and Financial Policy Council. Local authorities will hit budget balance in 2018, the regional authorities in 2019 and the Central Government in 2020. For its part, the Social Security system will reduce its deficit to stand at 0.5%. The minister pointed out that "the most likely scenario" is that in 2020 at least one of the three tiers of government will record a surplus, which will offset the deficit of the Social Security system.

Moderate increase in State spending

As regards public debt, Cristóbal Montoro explained that this will drop from around 99% of GDP for the public authorities as a whole this year to 92.5% in the year 2020. This "very substantial" reduction, he indicated, will be due to ongoing growth and the reduction in the public deficit. "This is very important", he claimed, because it also means that Spain's external debt with the rest of the world will fall and we will thus have greater possibilities of suitably financing the continuity of economic growth".

The limit on State non-financial spending for 2018, calculated in accordance with a "reasonable" improvement in tax revenue available, amounts to 119.83 billion euros, specified Cristóbal Montoro. As regards the 2017 Budget, this amount represents an increase of 1.5 billion euros, up 1.3%. "After so many years seeing this systematically fall, the State limit on spending is now rising, slowly but surely", underlined the Minister for the Treasury.

This increase will allow the public deficit to be reduced by six tenths, the regional authorities to be financed and the funds for civil service pensions to be increased as well as remuneration for civil servants. As regards the ministerial departments, they will have available spending of around 35 billion euros. "This is a figure that has also improved somewhat, although not greatly, in relation to what the government's policy has been on containing the spending of the ministerial departments in order to facilitate the suitable financing of the major public services, above all for social policies", pointed out Cristóbal Montoro.

Employment training

Pool Moncloa/J.M. CuadradoThe Council of Ministers approved the Royal Decree implementing the Vocational Training for Employment Act at a labour level.

The new legislation regulates training initiatives and programmes, the requirements and limits of these actions, their recipients and the accreditation of the skills acquired by workers. The Ministry of Employment and Social Security will draw up a multi-year plan to plot out the initiatives under this system of vocational training.

The Minister for Education, Culture and Sport and Government Spokesperson, Íñigo Méndez de Vigo, stressed that the goal is "to promote and extend training that improves employability and professional and personal development among companies and workers that are in work and those that are unemployed". The Royal Decree, he added, is particularly geared towards this 51% of structural unemployed that have not completed their basic obligatory studies in Spain.

Also at a labour level, the Minister for Employment, Fátima Báñez, announced the Eurostat figures on unemployment in the month of May at the Council of Ministers. This figures show that in the last year, Spain has reduced the number of people out of work by 636,000, a figure that is four times higher than in France, five times higher than in Germany and 11 times higher than in Italy, highlighted Íñigo Méndez de Vigo, who also pointed out that half of the new vacancies have been filled by women.

Remuneration for private copying

The government reformed the system of fair compensation for private copying, which will no longer be financed under the General State Budget.

Pool Moncloa/J.M. CuadradoÍñigo Méndez de Vigo announced that the new model establishes that the payment for private copying will fall on the manufacturers and distributors of reproduction equipment, devices and media. Those individuals and legal entities that justify the professional assignment of the equipment and devices acquired, and public sector entities are exempt from this payment. The implementation of this model will take place on a gradual basis.

The Government Spokesperson highlighted that the legislation approved on Monday includes contributions from the different parliamentary groups and called for all parties to back its approval.

Íñigo Méndez de Vigo pointed out that the measure is framed with the government's policy to fight all forms of piracy and responds to "the need to remunerate talent".

Current affairs

In relation to the new draft Transience Act in Catalonia published on Monday in a daily newspaper, the Government Spokesperson said that this process is being carried out in "great secrecy" and that the Regional Government of Catalonia is pressurising a large number of groups, including the media - to take on board their advertising campaigns - those mayors that are opposed to the consultation on sovereignty, public servants and the mossos d'Esquadra [regional police force of Catalonia].

As regards the future establishment of a National Constituent Assembly, the ultimate goal of which is to approve the Republic of Catalonia, Íñigo Méndez de Vigo stressed that this formula "takes us away from Europe; it is not part of European protocol".

Pool Moncloa/J.M. CuadradoThe Minister for the Treasury and Public Function announced that the Council of Ministers will "shortly" make a strengthened public job offer, with increases in the workforce and a reduction in temporary employment. He also announced that the pay rise for public servants - whose work has significantly contributed to overcoming the crisis - will be negotiated with the trade unions.

As regards any reduction in Personal Income Tax, as called for by Ciudadanos in order to back the Budget for 2018, Cristóbal Montoro remarked that their request is being studied in order to "clarify this and offer precision".

When asked about the reasons why job creation is growing more slowly than economic recovery, the Minister for Economic Affairs, Industry and Competitiveness pointed out that we have gone through "the worst crisis in Spain's modern history", in which employment has fallen by 3 million people. However, its recovery is very intense in terms of National Insurance contributor figures, which are growing "at an annual rate of 3.8%".