Council of Ministers

Government updates Stability Programme, which improves growth, job creation and public deficit forecasts to 2020

Council of Ministers - 2017.4.28

Moncloa Palace, Madrid

The Council of Ministers approved the updated Stability Programme for the period 2017-2020, which will be submitted to the European Commission together with the National Reform Programme.

The Stability Programme contains the macro-economic projections for a four-year term, together with the budgetary policy commitments. The Minister for Economic Affairs, Industry and Competition, Luis de Guindos, remarked that the document is based on a "very prudent" hypothesis: a slight improvement in the global economy, the stabilisation of petrol prices - marginally higher than at current levels - the maintenance of the exchange rate and a slight increase in interest rates.

The new forecasts estimate average annual growth of 2.5% between 2017 and 2020. The government has raised growth in the Gross Domestic Product (GDP) by 0.2% for this year, from 2.5% to 2.7%. According to Luis de Guindos, this is a "very moderate and cautious" scenario, since the figures for the first quarter of this year show that the Spanish economy "will pick up again". In terms of 2018, forecast growth stands at 2.5% and 2.4% for the following two years, "following this cautious approach adopted", added the minister.

Balanced and sustainable growth

Pool Moncloa/JM CuadradoLuis de Guindos explained that the variable that is determining the development of the Spanish economy is the export of goods and services, since this is rising at a rate of close on 5%. Household consumption and investments are also rising, but in a more moderate fashion, meanwhile the simultaneous contribution of domestic demand and external demand to the rise in GDP is following a pattern of "balanced" growth, pointed out the Minister for Economic Affairs.

The minister also highlighted that between now and 2020 inflation will remain below 2% - the target of the European Central Bank - and above all, that Spain will continue to post a surplus in its current account of the balance of payments, as has happened over the last four years.

The continuity of this surplus, he remarked, is an "extraordinary occurrence" in Spain's history, "a sign of the sustainability of its model of growth", and a reflection that "Spain is growing because it is competitive". This structural change in the economy, he added, is allowing it to reduce its debt with the rest of the world, a debt accumulated over the years of the "bubble" to finance the construction sector.

Creation of 2 million jobs

In terms of the job market, the Stability Programme forecasts the creation of some 2 million jobs, representing the average annual creation of half a million new jobs. Luis de Guindos pointed out that the number of people in work will exceed 20 million by the year 2019 and will practically hit record levels by the end of the following year.

The unemployment rate will fall by an average of two points a year, and hence by the end of this period it will stand at slightly above 11%, that is, 16 points below the maximum level it reached at the worst point of the crisis.

Deficit path and fiscal strategy

The Minister for the Treasury and Public Function, Cristóbal Montoro, underlined that the updated Stability Programme "maintains the public deficit reduction path agreed with the European Union", and places it for this year at 3.1% of the Gross Domestic Product and at 2.2% by 2018, such that Spain "could definitively exit the excessive deficit procedure".

Pool Moncloa/JM CuadradoAccording to Cristóbal Montoro, complying with this path is "absolutely fundamental" in order to achieve the economic growth and job creation targets. "It is in Spain's interest to reduce the public deficit and public debt precisely in order to create jobs".

Cristóbal Montoro added that this policy "is pulling us out of the crisis" and will allow us to overcome "the worst legacy of the crisis, which is unemployment and the lack of equal opportunities in gaining access to the job market".

Budgetary balance by 2020

The minister announced that, according to the forecasts, Spain will practically reach budgetary balance by the year 2020, with a slight deficit of 0.5% deriving from the social security system. The regional governments and local authorities will have a zero deficit, although Cristóbal Montoro pointed out that "it is highly likely that some of the authorities will even have a surplus".

In terms of the public debt, the minister indicated that this would fall from 99.4% of GDP in 2016 to 92.5% by the year 2020, which would mean a reduction of almost seven points.

The Minister for the Treasury argued that the policy to reduce the public deficit is perfectly compatible with growth and job creation. He also highlighted, in the same manner as the Minister for Economic Affairs, the improved foreign trade sector and the competitiveness of the Spanish economy.

According to Cristóbal Montoro, the government proposes moderation and maintaining all the revenue on the GDP of the public authorities, which will stand at 38.7% in 2020. As regards expenditure, he stated that this will fall from 41.5% in 2017 to 39.2% in 2020, without prejudicing benefits and public services.

The minister also stressed that, in national accounting terms, the public authorities are recovering their revenue potential.

Tax policy

The minister recalled that, between 2015 and 2016, the government has lowered Personal Income Tax and Corporate Income Tax by 12.3 billion euros, something that had never been done before. "Spain has never before had a Corporate Income Tax rate as low as 25%, and never before had a maximum Personal Income Tax rate as low as 45%.

On this point, Cristóbal Montoro pointed out that lower taxes have helped boost economic activity and that the draft General State Budget for 2017 forecasts that the same revenue will be collected as back in 2007, before the crisis began.

The minister also announced that the government plans to lower taxes to the extent that it can with the aim of "maintaining the economic boost derived from lowering taxes".

"We are truly strengthening economic activity, as can be seen, when we take well-planned, balanced tax measures aimed at those economic stakeholders that can best bear them at this time", he stated.

On another note, Cristóbal Montoro outlined the estimates contained in the Stability Programme that show that spending on social protection (pensions, long-term care and unemployment) is above spending 10 years ago, as is true of spending on healthcare and education. "The restriction on spending is not contained there; it is not included in social expenditure in any way whatsoever", he concluded.

National Reform Programme

Pool Moncloa/JM CuadradoAs regards the other document approved by the Council of Ministers to be submitted to Brussels - the 2017 National Reform Programme - this corresponds to the priority areas set by the President of the Government, Mariano Rajoy, in his investiture speech.

It also takes into account the need to reach agreements with other parliamentary forces, as well as the involvement of the regional governments, following the agreement reached at the Conference of Regional Presidents back in January, claimed the Minister for Education, Culture and Sport, and Government Spokesperson, Íñigo Méndez de Vigo.

In addition to those aspects relating to fiscal consolidation and the European agenda, the programme contains a raft of structural reforms at a national level, structured in six main areas: job creation and social inclusion, the goods and services markets, backing for entrepreneurial activity and business development, sustainable growth, public authority efficiency and long-term reforms.

As regards the latter issue, Íñigo Méndez de Vigo advocated reaching a consensus on such issues as the education model, regional and local financing systems and public pensions.

Active Employment Programme

Pool Moncloa/JM CuadradoAt a social level, the Council of Ministers approved a Royal Decree-Law to extend the Active Employment Programme until 15 April 2018.

The Government Spokesperson recalled that this programme has two main pillars: one on specific content regarding career guidance, training and re-training, and another that consists of economic aid of 426 euros a month for six months. The aim is to facilitate the return to the labour market of the long-term unemployed with family responsibilities.

The new legislation also incorporates a series of improvements agreed with the trade unions. Firstly, all those people can join up to the programme that have exhausted contributory benefits or unemployment subsidies. The waiting time for applying for this has also been reduced, from six months to one month, and the deadline for registering as a job seeker, from 360 to 270 days. And substantiation of actively seeking employment can be facilitated through placement agencies.

The minister stressed that this extension and the modifications introduced will allow some 210,000 people to sign up to the programme, which will lead to a total expense of 537 million euros. He also remarked that one in every three beneficiaries of this initiative have found a job.

Thyssen-Bornemisza Museum

On another note, the Council of Ministers authorised the concession of a State guarantee for the works displayed in the exhibition entitled "Renaissance Venice. Triumph of beauty and destruction of painting", that will take place between June and September at the Thyssen-Bornemisza Museum.

The Minister for Education, Culture and Sport recalled that the government is negotiating with Baroness Thyssen-Bornemisza to renew the loan of her private collection, comprising over 400 paintings. "Today we have agreed to continue with these negotiations and have set a deadline of three months to reach this agreement", he specified.

New economic cycle

Íñigo Méndez de Vigo referred to the main economic figures published in recent days, starting with the 0.8% growth of Spanish GDP in the first quarter of the year, according to the figures announced by the National Statistics Institute. This is a "very positive figure" he said, since it is double the European average.

This "new economic cycle", he declared, can also be seen in the figures on retail trade, tourism - which grew by 9.3% in the first quarter, compared with last year - and in the Labour Force Survey, with 537,000 more people in work year-on-year.

Current affairs

Pool Moncloa/JM CuadradoIn response to a question on the support the government has to push through the draft General State Budget, the Minister for the Treasury and Public Function said that he trusts the government will receive the support of Ciudadanos, the Canary Island Coalition and the Basque Nationalist Party.

"Intense negotiations" are going on with this latter parliamentary group "in a loyal and frank relationship" and the renewal of the Basque quota is being tackled, since the five-year law governing this has already expired, explained Cristóbal Montoro.

As regards the announcement made by the MP Pablo Iglesias to present a motion of censure, the Government Spokesperson described this as "meaningless" and contrasted this attitude with that of the government, which "is doing what it can and working to improve the quality of life of the Spanish people".

In terms of whether the three-month extension to continue negotiating on the loan of the private collection of Baroness Thyssen means there are difficulties, Íñigo Méndez de Vigo clarified that the government would like to reach a "long-term" agreement, rather than six-monthly renewals but, to achieve that, "interests must coincide" between the owner of the paintings and the State.

On another note, Íñigo Méndez de Vigo reported that the President of the Government set out, in a letter to the President of the European Council and the President of the European Commission, the grounds for Barcelona hosting the European Medicines Agency, currently located in London.