The IMF asks Spain measures credible fiscal and pension reform

Spain was for the IMF, an example of his reforms work. But complacency seems to have been exhausted. Although the Fund melts in praise with the recovery of the Spanish economy, its growth higher than the european average, strong job creation, the substantial private debt and the gains in competitiveness, also warns of looming risks. Public debt, unemployment and job insecurity are high. And the country has not adopted reforms to address their problems from 2013. In addition, it can alert of the risk that the Government of Pedro Sanchez the reverse, while noting that it will be difficult to be in the minority.

In line with your cookbook usual, the agency calls for fiscal measures additional “reliable” in order to trim the public deficit. Recommended pension reforms, because if their increases only linked to inflation, the deficit will soar. Criticizes the rise of 22% in the minimum wage because it will hurt the employment of young and low-skilled. Considered distorsionadoras the rate of Google, the financial and the lowering of taxes to smes. And argues that it is best to raise the reduced VAT and green taxes and special. Once again, advocates for making it more attractive to a permanent contract by cutting the cost of the compensation.

“The Budget of 2019 will need to include a package of adjustment measures reliable”, says the annual report on Spain by the International Monetary Fund (IMF), known as Article IV. Some of the initiatives raised by the Government will have “an uncertain outcome, in particular those that refer to new taxes and policies”. In consequence, the institution that manages Christine Lagarde considers it important to “limit the risk that the Budget will be left short”, “add measurements” and “be prepared to be able to adopt a contingency plan”.

Increase the revenue for VAT and green taxes is “preferable” to the measures included in the Budget, says the document. Rate digital and the financial says it can provide income, but that are distorsionadoras and that it is better to coordinate with the rest of the countries to prevent the flight of taxable bases. And on the reduction of the tax to smes, says that poses a disincentive to the growth of the companies. In the case that the accounts do not give, “the options by the side of the costs should also be identified,” he suggests.

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According to its projections, with the accounts, without changes, including the rise of pensions and the improvement of the salaries of the officials, the public deficit will be in 2019 at 2.4% of GDP, far of 1.3% which is required by Brussels and the 1.8% who aspires to the Executive of Pedro Sanchez. The technical Background validates that the target for next year is set at 1.8%. But they believe that it is “critical” to reach that 1.8 per cent. Even if the Budget of 2018 to be extended in 2019 without the decrees of spending additional, the budgetary lag would be in the 2% of GDP. The agency does not say how he would end up the shortfall with the Budget announced by Sanchez. The methodology of the Fund does not allows the assessment measures on which approval no doubt. But in any case it requires additional adjustments.

Mattress to face turbulence

The IMF insists a lot to take advantage now that there is a bonanza to reduce the deficit and the debt. It comes to have a mattress with the face of turbulence. Otherwise, “Spain would be forced to pro-cyclical adjustment if the economy is hit by a shock,” he says. And argues that this objective is compatible with the reduction of inequality that it seeks a Neyine Executive of Sanchez. In the judgment of the agency based in Washington, it would be ideal to go for VAT and have a better design of taxes, raising green taxes and special and eliminating deductions to get additional income. With this improvement of the collection, you could dedicate a site solely to the most vulnerable.

The reduction in the deficit is essential, especially because the growth is going to slow down according to lose strength cycle. Due to the worse performance of the external sector this year, the IMF reduced its growth forecasts from 2.7% to 2.5%, and the projection of 2019 the stops like: at 2.2%.

The other basic point to ensure the sustainability of public finances are the pensions. According to the Fund, it is true that you must ensure the social acceptance of the reforms. But if you only link to the revaluations of the benefits to the evolution of inflation, then the Social Security deficit will increase to between three and four percentage points of GDP to 2050. That is to say, the hole current will triple.

And this will put even more pressure on a few generations of young people who are, in the opinion of the Fund, have suffered most the crisis. Among the reforms urged to tackle, to quote one of the incentives for working more years, index the retirement age to life expectancy, to raise incomes by self-employed and high wages or the additional savings. “As long as there is space to finance any additional spending on pensions, the margin is fairly limited given the already high social security contributions,” reads the document. Or, in román paladino, it is not enough only with income. In your particular jargon, the Background speaks of a package “sustainable”.

labor Reform

In terms of the labour market, the IMF advocates to retain the essence of the labor reform. Argues that failure to address the temporality, and to that end it is necessary to narrow the differences in costs between temporary and permanent. But that shouldn't be made to recommend the possible, then the inevitable conclusion is that there is that, “reducing the costs of recruiting and severance payments for permanent workers”. Among those costs is included to clarify the list of grounds for declaring null and void the dismissal. It also points to the creation of the call backpack austrian, which makes the employer pay month-to-month in advance a part of the dismissal of the form that accumulates in a backpack that the worker can carry with you. In order to defend the reforms undertaken, the IMF mentions a study into the estimated that only the labor reform of 2010 contributed to a fifth of the improvement of exports until 2013.

The Fund places special emphasis on the increases of salaries should be dealt with in line with the increases of the productivity. To do this he says that “it is critical that the efirms can continue to set wages according to his terms of business”, which is now the Executive of Sanchez wants to return to unions and employers.

In terms of the price rise of 22% in the minimum wage for the coming year, the Fund believes that “will put at risk the employment opportunities of young people and the less educated”. “The proportion of the minimum wage on the average wages will rise quickly to become one of the highest in the EU. Therefore, it is justified to allow for a greater differentiation with the minimum wage,” he concludes. On the contrary, it explains that increases in minimum wage were beneficial in 2017 and 2018 because they affected only “a small number”.

with Respect to the Spanish banks, praises the progress made, but remember that you still collect a delinquent high and is lagging behind its european peers in the levels of solvency.

finally, the agency encourages Spain to implement further reforms to boost growth and productivity. Among them, improving training and education; strengthen the regional differences in productivity; promote innovation; facilitate competition and remove barriers to the growth of the companies.