Spanish Economy in 2018 outlook

Good headline economic figures don’t mean that the Government’s work is done.

For the ruling People’s Party, weighed down by corruption charges and battered from all sides for its handling of the Catalan question, the economy has been one of the few bright spots. Rajoy came to power with it in virtual free-fall. Things do look much better now – GDP has grown at over 3% for the last three years, unemployment has fallen by nearly 1.5 million, and the deficit has been slowly pared back from around 10% to 3%.

So all good then? Not really. Opinion polls show that voters aren’t convinced by the PP’s narrative of economic competence. While non-economic issues such as graft or Catalonia also come into play, the Government’s problem is that any feel-good factor is far from evenly spread. Many young Spaniards face a struggle to find work, and when they do, can probably expect years of meagre pay rises. With high property prices in many cities, most can’t even imagine the day when they can buy their own house.

Creating jobs should be the overriding priority. Nine years on, the economy is now bigger than it was when the crisis struck, yet unemployment is still far higher. Rajoy should start by making it easier for companies to take on workers. High national insurance costs, together with an excess of red tape, dissuades them from recruiting. That’s partly why Spain has so many small companies that don’t grow into bigger ones, which are usually more productive and pay better. Self-employed business owners have little incentive to take on staff. So unemployment remains higher than it should, putting downward pressure on wages which in turn means less spending, and lower growth.

Politicians of all colours are too sanguine about the public debt. During the crisis it ballooned from 35% of GDP to over 100%. Even after several years of belt-tightening, it still stands at 98.7%. That’s not a good starting position for the next downturn. And one day interest rates will rise, as will the costs of servicing the debt, diverting funds away from worthier causes.

There’s relatively little debate about cutting spending. No party seriously questions the costs of maintaining seventeen regional parliaments, with the salaries and pensions of 2.500 regional MPs and the supporting infrastructures, often duplicating existing state departments.
Taking the axe to the regional Televisions would help. At their worst they are a scandalous propaganda tool and a way of giving jobs to friends; at their best they are simply a waste of time. Costing close to €1bn, most of which is paid for by taxes, they hardly produce any content worth watching. Two of them managed an official audience share of zero for their respective New Year Specials.

But it’s much easier to raise taxes; hearing Finance Minister Montoro speak one suspects that given half a chance he would keep all of what we earn. Lottery winners don’t arouse special sympathy among the general public, but his decision a couple of years ago to tax the prizes is illustrative. The lottery is already a levy, with the Government keeping between 30% and 45% of proceeds, and tickets are bought with post-tax income. But now, should you get lucky, there’s Montoro again with his hand out to ensure the triple-whammy.

Worryingly, other parties also see raising taxes as a cost-free policy. The Socialist leader Pedro Sánchez recently announced a plan to plug the pension deficit with a special tax on banks. No prizes for guessing who will end up paying that one. Podemos criticized Sánchez, not for the idea in itself but for allegedly stealing theirs.

So it’s time for politicians to fight against their natural instincts to put their hands in our pockets, and think about what needs to be done to get more people working and earning decent money. That means helping private sector companies to create jobs and make the profits that directly or indirectly not only pay their own employees’ salaries, but also those of our esteemed elected representatives.

Roger Pike

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