Government upwardly revises economic growth forecast and estimates 2 million new jobs in next four years

Moncloa Palace, Madrid

The Minister for Education, Culture and Sport and the Government Spokesperson, Íñigo Méndez de Vigo, announced that the Council of Ministers approved, for their submission to Parliament, the budget stability and public debt targets for the period 2017-2019 and the limit on non-financial spending under the State budget for the year 2017, so that Spain can thus meet its commitments with Europe.

Íñigo Méndez de Vigo highlighted the understanding and dialogue with all the political parties in recent weeks. The government, he said, calls for responsible and constructive dialogue because it believes that this is the ideal path to forge suitable solutions with contributions from all parties. "This dynamic of dialogue will need to be shored up in the future in a series of State agreements and pacts that are necessary for ensuring the stability of the country and the progress of Spanish society and to meet the commitments we have taken on with the European Union", he added.

The Government Spokesperson asserted that the question is to consolidate the reforms that have led to the progressive recovery of the economy and push through new reforms in order to guarantee this recovery and job creation. "It is not beneficial for Spain to go backwards; it needs to look to the future with determination", he underlined.

Macro-economic forecasts

Pool Moncloa/JM CuadradoThe Council of Ministers agreed to an upward revision of the macro-economic forecasts both for this year and next year.

The Minister for Economic Affairs, Industry and Competitiveness, Luis de Guindos, reported that the government has updated the projected growth contained in the Budget Plan sent to Brussels in mid-October, when it was operating as a caretaker government.

Luis de Guindos explained that the government is raising the economic growth forecast to 3.2% in 2016 and to 2.5% in 2017. The estimated growth rate for the following two years stands at around 2.4%. According to the minister, "these are prudent figures" and "perfectly within our reach", which "highlight the macro-economic stability of the Spanish economy".

In this regard, Luis de Guindos emphasised that the figures are based on a moderate increase in private consumption, a positive contribution from the foreign trade sector to growth and very low inflation. Moreover, an external surplus in the balance of current account payments has been maintained, which will hit 2% this year, and over the next four years the economy will post a financing capacity with the rest of the world of 2% of Gross Domestic Product (GDP).

Job creation

The Minister highlighted that the unemployment rate will fall to 12.8% of the active population by the end of 2019. "That is a fall of more than eight points". In this regard, he recalled that the unemployment rate in Spain rose as high as 26.9% at the start of 2013. It currently stands at 18.9%, according to the figures published by the Labour Force Survey (Spanish acronym: EPA) and will gradually fall to reach this forecast rate of 12.8%.

As regards employment, Luis de Guindos stressed that "it is perfectly viable to end up with more than 20 million people in work by the end of the year 2019, specifically the figure of 20,068,000, which will represent an increase in round numbers of 2 million more people in work". During the fourth quarter of 2015, the number of people in work stood at approximately 18.100,000, he recalled.

Unemployment, according to the forecast made by the government from the EPA figures by comparing the fourth quarter of 2015 with the fourth quarter of 2019, will fall by 1,841,000 people. "Unemployment will fall at a rate slightly higher than 430,000 people a year", the minister said.

Stability targets and ceiling on spending

Pool Moncloa/JM CuadradoThe Minister for the Treasury and Public Function, Cristóbal Montoro, explained the stability targets for 2017-2019, with a new path for the reduction of the public deficit and ceiling on non-financial State spending for 2017. Cristóbal Montoro stressed that the two issues have been submitted to Parliament but that it will only vote on the stability targets and not the ceiling on spending, which is the first step in the budget cycle.

Firstly, the targets for 2016 have been updated, an issue tackled during the week by the National Commission on Local Administration and the Fiscal and Financial Policy Council. This year will close with a public deficit of 4.6% of GDP; the part corresponding to the regional governments will rise by 0.4%.

The target set for next year stands at 3.1%, which will require "a major effort in terms of reduction" for the public authorities as a whole and, in particular, by Central Government, pointed out Cristóbal Montoro. The Minister for the Treasury added that the current scenario of growth "facilitates things a great deal, although it also obliges us to take certain decisions". The public authorities will have a deficit of 2.2% in 2018, "a qualitative leap of great significance", according to the minister, since Spain will thus fall outside of the procedure opened by the European Commission due to its excessive deficit. Finally, by 2019, the public deficit will stand at 1.3%.

In terms of public debt, this year will close at 99.4% of GDP and start to significantly fall by 2018, thanks to the deficit correction and to economic growth, and thus start to pull away from the benchmark of 100% of GDP.

The government proposes a limit on non-financial State spending for next year of 118.34 billion euros, the same amount as it expects to spend in 2016 after the government saves some 5 billion euros of the initial amounted budgeted, "without reducing any social spending programme", underlined Cristóbal Montoro.

New revenue

The Minister for the Treasury pointed out that part of the saving made this year - some 2 billion euros - is due to interest, something which will not easily happen again. Moreover, in order to meet the adjustment committed to with Brussels, another 5.5 billion euros are required. To that end, the Council of Minsters has approved a series of tax measures with an estimated structural impact of some 7 billion euros.

Most of this will come from Corporate Income Tax and from special taxes. Another source of revenue will be initiatives related to the strict application of taxes, such as tougher controls on the deferment of certain types of debt with the Tax Agency. The new measures to fight tax fraud will enable another 500 million euros to be collected in revenue. Finally, the reform of the public administration services will lead to some 900 million euros in savings, according to Cristóbal Montoro.

Pool Moncloa/JM CuadradoAs regards Corporate Income Tax, the goal is to close off 2016 and the projection of the partial payments into the system for 2017, with resulting increased revenue of some 4.65 billion euros. Among the deductions that are modified, Cristóbal Montoro mentioned the limitation on offsetting negative tax bases from previous years for large corporations.

The Minister for the Treasury underlined that the normal rate for this tax of 25% will remain in force. The aim of the reform, he said, is to ensure "the effective rate draws closer to the nominal rate", which "would take tax collection, in terms of annual revenue, to somewhere between 25 and 26 billion euros".

Special taxes

Some 150 million additional euros will come from special taxes (alcohol and tobacco). In the case of tobacco, taxes are raised by 2.5% on cigarettes and 6.8% on roll-your-own tobacco. Tax on alcohol consumption is raised by 5%, both on the mainland and in the Canary Islands, although tax on beers and wines remains unchanged.

The minister also referred to the draft law establishing a tax on carbonated and sweet beverages which will bring in 200 million euros in revenue in 2017. He stressed that this is an increasingly frequent tax in European countries and is designed as "an instrument to fight obesity and problems of excess sugar consumption".

Cristóbal Montoro announced that the government also intends to implement a reform in the field of environmental taxation for the year 2017. "This demand comes from the EU itself for us to develop and regularise this kind of tax in Spain", he said.

As regards VAT, the government approved a system of online settlement that, when fully developed, will involve some 60,000 taxpayers and represent 80% of the billing of this tax.

Minimum wage and contributions

Another area of action by the Council of Ministers has been the Social Security system, "where we will foster the removal of a ceiling of 3% on contributions, leaving the Toledo Pact to decide on a broader programme on these ceilings" in the future, pointed out Cristóbal Montoro. The increase in the amount of the maximum limit on the contribution base would bring estimated revenue of some 300 million euros into the Social Security system.

The minister pointed out that the government will set the increase in the minimum wage for 2017 at 8%, an issue that exclusively falls to the government, although it has been negotiated and "debated" with other political groups.

On another note, Cristóbal Montoro reported that the government will set the new limit for cash payments on 1,000 euros instead of 2,500 as at present. Changes will also be introduced into the publication of the list of Public Treasury debtors so that, following a warning by the Tax Agency to the taxpayer, its subsequent publication is averted if the debt is settled.

Financial measures

Pool Moncloa/JM CuadradoThe government approved a Royal Decree Law on urgent financial measures which provides for three main issues.

The first is a line of credit that the Spanish Treasury will make available to the Single Resolution Fund. Banks must provide 1% of the total of its deposits, which will be covered by Member States until such time as this is achieved.

The second question includes a modification to the accounting regime of the Company for Assets from Bank Restructuring (Spanish acronym: SAREB) to define the impact of the modifications on the price of its assets on shareholder equity and income statements.

Lastly, the maximum limit for the privatisation of both Bankia and BMN (Banco Mare Nostrum) has been extended to two years; in the case of Bankia until the end of 2019 and in the case of BMN until May 2020.

Luis de Guindos explained that no specific date exists for the State to offload its capital stake in Bankia and in BMN, and hence "we can choose the best moment" for this to take place, a situation that the European Commission has been made aware of.

Focus on long-term unemployed

The Council of Ministers approved two agreements aimed at catering for the long-term unemployed. The first, with funding of 129 million euros for 2016, seeks to focus the efforts of the Public Employment Services on autonomous regions so as to improve and personalise the attention received by this group.

Pool Moncloa/JM CuadradoThe second agreement allows for the distribution of a little over 1.8 billion euros among those regional governments that implement active employment policies. 30% of this total will be paid out to regional governments according to the number of unemployed, while 70% will be awarded according to compliance with the strategic targets set at the Sector Conference on Employment and Labour Issues held back in April.

These strategic targets are aimed at improving the employability of young people and other groups particularly affected by unemployment, especially those over the age of 45; increasing the quality of vocational job training; strengthening the ties between active and passive employment policies and encouraging new entrepreneurs.

Other agreements adopted by the Council of Ministers

The government authorised the Institute for the Restructuring of Coal Mining and Alternative Development of Mining Districts to call for proposals for aid designed to cover exceptional costs in the coal mining industry for a maximum sum of 25 million euros.

It also authorised an agreement to be signed on political dialogue and cooperation between the EU and its Member States and the Republic of Cuba. This agreement, which will shortly be signed in Brussels, replaces the common position adopted in 1996. For Spain, this represents grounds for satisfaction, explained the Government Spokesperson, due to the important role it has played "in unblocking the stalemate, firstly, and in the subsequent negotiations" and due to "the human and historical ties that Spain has always had with Cuba".

The government approved a Royal Decree declaring that the figures on the population contained in the municipal census from January 2016 are official. Pursuant to the figures from the National Institute of Statistics, the total population of Spain amounts to 46,557,008 people, a decline of 0.1%.

Pool Moncloa/JM CuadradoThe government approved another Royal Decree to support the wine sector. This new legislation seeks to adapt domestic legislation to the new EU legislation and establishes the "measures on eligibility to apply for aid within the framework of the programme for 2014-2018", which relates, among other aspects, to the promotion of wines in third countries and the restructuring and reconversion of vineyards.

On another note, the Council of Ministers authorised three subsidies from the Ministry for Health, Social Services and Equality for programmes to prevent and control the HIV infection and AIDS (1.72 million euros), the maintenance of women's associations at a State level (1.25 million euros) and of associations of elderly people, the disabled and those with long-term care needs in Ceuta and Melilla (765,654 euros).