Cristóbal Montoro defends new growth model based on job creation to combat social inequality

While defending the Draft General State Budget for 2016 during a debate on the issue, the Spanish minister highlighted the austerity policy implemented by the Government of Spain since the 2012 Budget, saying this policy is responsible for regaining the confidence of the international markets. He also insisted that the stimuli measures - in the form of liquidity injections into the economy and structural reforms to improve growth - are helping create jobs "at the fastest possible pace we could expect from this level of growth".

Furthermore, Cristóbal Montoro stressed that a new, more socially-advanced social growth pattern has been achieved this legislature with no negative side effects "because all improvements in activity are being converted into jobs". The lack of inflationary pressures means that workers can maintain their purchasing power while companies can grow and create jobs without such a need to borrow.

Minister Montoro stressed that this situation is not a result of the favourable international climate because, if that were the case, other countries would be in the same or a better position than Spain. However, "Spain is leading the developed world in terms of growth and job creation due to the policies we have implemented over the last three and a half years; policies that have counteracted the macroeconomic imbalances and undertaken structural reforms to better harness the opportunities for growth".

A result of "effective management"

The Spanish minister took stock of the overall results from the economic policy implemented this legislature. The goal was to correct the structural imbalances that existed in 2011 "through a policy that has combined austerity, efficiency and cost containment".

Pool MoncloaHence, the tax changes made in 2012 recovered revenue through a greater contribution from large companies through Corporate Income Tax and a greater contribution from citizens with the highest incomes through a temporary complementary levy under Personal Income Tax. These efforts led to a revenue increase of 7 billion euros. Once revenue was stabilised, efforts were focused on improving the taxation of entrepreneurs, incentivising research and development, facilitating company finance and capitalisation, and strengthening the fight against fraud.

Similarly, other structural reforms also helped stabilise the economy and improve its potential for growth. These included the labour reform, the financial reform, the energy reform, the regulation of market unity and the supplier payment plan. They all helped lower the public deficit, reduce financial leverage, decrease default and lay the groundwork for job creation.

Austerity has enabled spending priorities to be set with a view to preserving social policy. Hence, the purchasing power of pensioners has been maintained. In turn, the CORA programme has streamlined spending by the administration services and eliminated overlaps between them. It has thus been possible to reduce public consumption by almost 17 billion euros from the public sector consolidated accounts since the start of the legislature.

The recovery of revenue and the improved economic situation have enabled a tax reduction as from 2015. They have even allowed the tax reduction due to take effect as from 1 January 2016 to be brought forward and increased, with an additional impact on liquidity for taxpayers of 1.5 billion euros. With the reform in effect since 2015, the average final reduction to Personal Income Tax will be 14.6% - with the strongest effects felt by those on middle and low incomes. The minimum marginal rate of Personal Income Tax will fall to 19% in 2016, five points below the rate in 2011.

Improved revenue in July

The Spanish minister stressed that the good results in terms of revenue is allowing tax bases to increase faster than real GDP growth. Hence, he announced that tax revenue has increased by 4.6% in adjusted terms to July when compared with the first seven months of last year. This is one point higher than the increase recorded to June by the Spanish Tax Agency (3.6%). The recovery in revenue offsets the reduction afforded to each taxpayer. According to Cristóbal Montoro, this will enable a further tax reduction to take place in 2016.

A more social budget

The Spanish minister stressed that the General State Budget for next year marks a continuation of what has been done so far, guaranteeing budget stability while reflecting "cautious" and "conservative" forecasts. It provides for non-financial expenditure of 123.39 billion euros, 4.4% less than last year and in line with the spending discipline of recent years. It is the first budget with a positive primary balance, reflecting a message of debt growth correction.

Cristóbal Montoro stressed that the budget is of an even more social nature, if that were possible. Of every 100 euros in the budget, 39 will be spent on pensions, seven on various unemployment benefits and eight on other social expenditure headings.

The budget contains a pay increase of 1% for civil servants, the reinstatement of the rest of the bonus that was suspended in 2012 and a 0.25% pension increase. The investment drive is focused on the programme to make use of EU funds, especially the CRECE Plan.

Regional financing will be increased by 7.8% on 2015, creating a "liquidity bridge" to guarantee the provision of public services.
This has been made possible by the budgetary margin that is enabling revenue growth. Hence, an increase of 4% on the initial 2015 Budget is forecast for next year, as well as a 6.2% increase on this year's advance settlement instalment.

In short, Cristóbal Montoro said that the 2016 Budget is key to opening a "new era of prosperity for Spain" based on budget stability and job creation.