Spanish government starts summer recess with dark clouds on the horizon

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summer recess

MADRID – The Spanish Prime Minister’s last public appearance before the summer recess was in Salamanca. Sánchez praised himself last week for his vaccination policies and for the recent economic recovery but leaves the country more concerned than optimistic.

According to the newspaper El Economista, dark clouds are gathering on the horizon. Spain’s spending ceiling has never been higher and its public debt is sky-high as well. No fiscal adjustments have been made and just before the summer, the government announced it would create 30,000 new government jobs and raise the minimum wage again.

The announced package of reforms – labour market, pension system, financing regions, housing and taxes – remains untouched. Spain is partly betting on the arrival of European funds. A fact that caused a stir at the last meeting with the regional presidents in the country.

In Salamanca, Sánchez also informed that of the €19billion Spain receives from Brussels from Next Generation funds, 55% will be managed by the Autonomous Communities. However, he did not elaborate on how this should be done.

Increase minimum wage

There was much criticism from employers about another increase in the minimum wage. Think tank Funcas warned about the consequences this could have in the service sector, where salaries are low. The timing of the announcement was judged to be poor.

Lorenzo Amor, president of the Self-Employed Association, said the increase in the minimum wage would damage jobs. Many self-employed and small businesses have no prospect of recovery on the horizon.

For Miguel Garrido, president of the CEIM employers’ association, economic recovery is paramount. Without it “increases in civil servant salaries, pensions, the SMI, an increase in the spending cap and 30,000 new government jobs” will not bring more wealth.

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Labour market reform

For now, the labour market reform is also on hold. The national employers’ organisation CEOE opposes the latest proposal from the Minister of Labour without social dialogue. President Antonio Garamendi even said that in his view it is an “unacceptable, ideological and interventionist reform”. From another perspective he demands this reform be aligned with the reality of the working people, and also be in line with the country recommendations of the EU.

The problem is this is the first major reform of which Europe is demanding the agreement and consensus of the social partners in exchange for receiving the new European funds. If no agreement is reached, Spain can whistle for this help.

Pension system reform

In similar circumstances is the reform of the pension system. This will start in 2022. So far, nothing on Europe’s wish list has been achieved in exchange for the funds. And so, and with a view to 2022, the extension of the pension calculation period and the reform of the self-employed premium are pending.

Tax reform

The other important topic is tax reform. Tax harmonisation could finally be imposed whereby regional communities lose certain tax powers. New taxes are introduced or existing taxes are increased. The government is introducing the global minimum for corporate taxes, a levy on tolls, plastic waste and the Google and Tobin tax.

The financing of the regions from Madrid also ensures that some are diametrically opposed to each other. In this regard, sources from the Ministry of Finance indicated they hope in the second half of the year progress will be made on some concepts of the reform of the autonomous financing system, such as the composition and weight of the adjusted population variables.

Housing law reforms stalled when negotiations between Unidas Podemos and the PSOE stalled. Determining the rent is the biggest obstacle now that Europe is asking for legal certainty.

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