Government approves Budgetary Stability Programme 2016-2019 and National Reform Plan

Moncloa Palace, Madrid

The Council of Ministers agreed to submit to the European Commission the Stability Programme and National Reform Plan of the Kingdom of Spain, an obligation that exists on all Member States of the EU with the aim of coordinating national economic policies and achieving the targets set for the EU as a whole, explained the acting Vice-President of the Government, Soraya Sáenz de Santamaría.

These documents, which explain the recent positive trends of the Spanish economy and outline its macro-economic and fiscal situation in the medium term, reflect that Spanish GDP grew by 3.2% in 2015 and that, according to the figures published on Friday, the Spanish economy grew by 3.4% year-on-year in the first quarter of 2016. "This is the best figure for the last eight years, which places us at the head of the main economies in the Economic and Monetary Union", underlined the Vice-President of the Government.

Soraya Sáenz de Santamaría added that the improvement in economic activity has translated "into an intense period of job creation", with almost 600,000 new jobs in the last 12 months, 3.9% up on this time last year. Furthermore, unemployment has fallen by 653,000 people, a decline of 12%.

Soraya Sáenz de Santamaría also highlighted the importance of growth in household consumption, by 3.5% at the close of 2015, of the competitiveness of the economy and the improvement in credit thanks to which companies can obtain loans at better rates.

These figures led the Vice-President of the Government to declare that "if things continue this way, if we continue down the path of reforms that characterised the last term of office, by 2019 Spain could have practically 20 million people in work, with an unemployment rate of just over 13%".

National Reform Programme

Pool Moncloa / JM CuadradoThe programme outlines the main measures which, according to the government, should be adopted to maintain growth and the rate of job creation. At a national level, the main goal, summarised the Vice-President of the Government, is "economic recovery and job creation, together with quality". In order to achieve this, five areas of action have been planned out: job creation and social inclusion, progress on enhancing efficiency and competition in the goods and services markets, backing for entrepreneurial activity and business development, boosting sustainable growth, focused on R&D and the environment, and the effectiveness of the public administration services.

At a fiscal level, the goal is to reform the system of regional financing to ensure a minimum level of services throughout the country and stable and sufficient financing regardless of the economic situation. Moreover, the fight against fraud in tax evasion will remain a priority: between 2012 and 2016, 50.5 billion euros have been collected through actions to combat fraud, which represents "the best figures yet for the tax agency", maintained the Vice-President of the Government.

Finally, at a European level, the government will continue to collaborate in the design of the new economic governance and back an ambitious reform of the Economic and Monetary Union.

Macro-economic situation

Pool Moncloa/JM CuadradoThe Minister for Economic Affairs and Competition, Luis de Guindos, said that the macro-economic chart for 2016-2019 presented to the Council of Ministers is based on "prudent and cautious hypotheses" in order for it to be "very highly credible".

The Minister for Economic Affairs pointed out that economic growth in 2016 will stand at 2.7%, at 2.4% in 2017 and at 2.5% in the remaining two years - 2018 and 2019. The prudence of these figures is backed, according to the minister, by growth in the first quarter of this year, published on Friday, of 0.8%, which is identical to the last half year of 2015, thus representing year-on-year growth of 3.4%.

This economic growth is the result of the correction of the macro-economic imbalances, according to Luis de Guindos, who predicted that, if the forecast of 2.7% is met this year, then at the start of next year "we will see levels of revenue and levels of gross domestic product that we enjoyed before the start of the crisis".

The minister underlined the importance of the progress seen in investment, stronger for capital goods, of above 5%, than for construction. At this time, Spain, aside from tourism, exports a monthly average of 25 billion euros in goods and services, which represents a fundamental change in the model of the Spanish economy. "We have ceased to be an economy that fundamentally depended on credit to the real estate and construction sector and become an economy that depends on the export of goods and services", he explained. Moreover, he pointed out that this model is "more sustainable over time and is less subject to the ups and downs of international financial crises".

As regards the progress of GDP and in relation to the foreign trade balance, the macro-economic situation now means we have accumulated seven straight years of surplus in the balance of payments.

In relation to employment and unemployment forecasts, according to the Labour Force Survey (Spanish acronym: EPA), the minister maintained that by 2019, there will be almost 20 million people in work in Spain, which means that over the next four years 1.85 million jobs can be created in Spain, at an average rate of 470,000 per year.

Non-availability of 2 billion euros

The Council of Ministers approved an agreement on the non-availability of credit in the 2016 General State Budget for the sum of 2 billion euros, to be distributed in a balanced fashion between all the ministerial departments. The measure seeks to guarantee that the fiscal consolidation targets agreed with the European Union are met.

The Minister for the Treasury and the Public Administration Services, Cristóbal Montoro, stressed that this agreement will not affect social spending or headings related to security.

Cristóbal Montoro announced that in addition to this budgetary adjustment 2.04 billion euros can be added in spending adjustments by the regional governments and 729 million euros in savings as a result of the process to reform the public administration services (Spanish acronym: CORA). In addition, an expected saving of 1 billion euros is expected to be made as a result of the fight against fraud.

Pool Moncloa / JM CuadradoThe minister trusts that the deficit figure for the public authorities as a whole will fall from 5% of the Gross Domestic Product in 2015 to 1.6% by 2019. According to the government's forecasts, the Social Security system will close the year at -1.1%, the local authorities will maintain budgetary balance and the regional governments will have to make an adjustment for the sum of 2.04 billion euros in order not to exceed the target of -0.7% set for this year.

The government's intention, according to Cristóbal Montoro, is for the Social Security system to reduce its deficit without this affecting pensions. "The absolute priority is pensions. That is not open to discussion", he stated.

Impact of tax reform

Cristóbal Montoro highlighted that the government has lowered taxes in 2015 and will continue to do so this year. "There are millions of taxpayers who are paying less income tax in 2015 than in 2011. We are more than paying back the part we had to raise in the first half of the legislature".

The minister specified that the fall in revenue from Personal Income Tax in 2016 will amount to 2.58 billion euros and 1.51 billion from Corporate Income Tax. However, he pointed out that by dropping taxes, more revenue was collected in 2015 (242.27 billion euros) than in 2014 (230.4 billion euros). Furthermore, he forecast that revenue will continue to rise in the coming years to a maximum of 292.68 billion euros by 2019.

Cristóbal Montoro pointed out that this increase in tax revenue will be maintained at the present levels of fiscal pressure - around 38% - and committed to new tax reductions in the future.

Public spending

In terms of public spending, the minister recalled that the Budgetary Stability Programme points to public spending losing its share in Gross Domestic Product. "We will maintain fiscal pressure, reduce the public spending ratio to GDP of and reduce the public deficit. By doing this, we are driving the economic recovery and job creation", he argued.

Cristóbal Montoro highlighted that in 2015 the public administration services spent 184.23 billion euros on social protection, close to 50 billion more than in 2007. "The figures are overwhelming. There have been no cuts in social spending, not in relation to 2007 or to any other year. And in line with the government's programme there will not be any in the future". "What we have programmed is that by 2019 we will spend 200 billion euros on social protection. That will mean that there will be no rises in certain other areas, but the government has set its priorities", he added.

In relation to the State budget, the minister highlighted that it is designed to help finance other public authorities. "More than 60% of the State budget will be allocated to financing other public authorities, the regional governments, local authorities and the European Union".

In terms of the spending of ministerial departments, Cristóbal Montoro pointed out that this amounts to 66 billion euros.

On another note, he also underlined that in order to reduce the public deficit, the public debt ratio to GDP must be reduced in order to be able to finance the growth of the economy. Hence the macro-economic chart forecasts that public debt will close 2016 at 99.1% of GDP and will continue to fall to stand at 96% by the year 2019.

Catalan laws to be appealed as unconstitutional

Pool Moncloa / JM CuadradoThe Council of Ministers asked the President of the Government to lodge an appeal against the unconstitutional nature of certain aspects of the regional law in Catalonia of an urgent nature to tackle the housing crisis.

It also asked the President of the Government to lodge an appeal against the unconstitutional nature of certain aspects of the regional law in Catalonia to incorporate property leaseholds and common ownership into the fifth book of the Civil Code of Catalonia.

It also agreed to respond to the request regarding a lack of competence lodged by the Regional Government of Catalonia in relation to energy efficiency.

The Vice-President of the Government reported that none of the measures relating to energy poverty will be appealed against "because it is understood that the Regional Parliament of Catalonia can adopt these within the scope of its powers and that this does not prejudice the right to equality". What will be appealed against, explained Soraya Sáenz de Santamaría, are "certain procedural aspects that affect the equality of all Spaniards before the law, such as the procedure on mediation, the condition precedent to lodge appeals and civil aspects such us the coercive transfer of the ownership of property because this affects the essential content of the right to property ownership that must be the same for all Spaniards".

Other agreements

The government authorised the limits to taking on spending commitments charged to future financial years, with the aim of enabling Spain's participation in the financing of the Refugee Fund for Turkey.

In addition, the Council of Ministers authorised three partnership agreements to be entered into with a provision of more than 98 million euros to finance SMEs and young entrepreneurs with a specific line of credit for technology-based SMEs. It also analysed a report on the energy mining sector and approved the concession of 14 Gold Medals for Merit at Work.