Spain urges structural reform to relaunch the economy after the virus.

 

* The Editorial Board of ‘elEconomista’ draws up a decalogue against the crisis.

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The economic crisis looming over Spain due to the coronavirus will force structural adjustments for the economy to survive. Despite the aid still being studied by the European Union (EU), It is a priority to undertake structural reforms based on the economic policy recommendations coming from Brussels.

This is how the decalogue prepared by the members of the Editorial Board of the Economist. The specialists assure that it is urgent to undertake and implement pending structural reforms. Specific, the most important ones are about the sustainability of the pension system, an educational reform and tax reform. We must improve the qualification of human capital, and implement dual training, at the same time, digitization and innovation should be promoted.

The European recovery fund to relaunch the economy has conditions and, no compromises, Spain will suffer. Precisely, this week the OECD placed Spain as the country with the worst forecasts after the coronavirus. All community money “has conditionality”, because it is everyone's money. So, the big question is What will be the requirements that the European Commission will ask for?, and they will accept the Member States, in exchange for the largest fiscal stimulus in the history of the EU to overcome the Covid crisis.

The economic crisis looming over Spain due to the coronavirus will force structural adjustments for the economy to survive. Despite the aid still being studied by the European Union (EU), It is a priority to undertake structural reforms based on the economic policy recommendations coming from Brussels.

This is how the decalogue prepared by the members of the Editorial Board of the Economist. The specialists assure that it is urgent to undertake and implement pending structural reforms. Specific, the most important ones are about the sustainability of the pension system, an educational reform and tax reform. We must improve the qualification of human capital, and implement dual training, at the same time, digitization and innovation should be promoted.

The European recovery fund to relaunch the economy has conditions and, no compromises, Spain will suffer. Precisely, this week the OECD placed Spain as the country with the worst forecasts after the coronavirus. All community money “has conditionality”, because it is everyone's money. So, the big question is What will be the requirements that the European Commission will ask for?, and they will accept the Member States, in exchange for the largest fiscal stimulus in the history of the EU to overcome the Covid-19 crisis.

A reconstruction program should be drawn up that makes the spending ceiling and the debt ceiling explicit

 

Thus, The Editorial Board of elEconomista stresses that Spain must prioritize the path of fiscal consolidation, adjusting all inefficient and unproductive spending. In his opinion, an exacerbated tax increase, Conversely, weighs down economic growth, scares off investment, and diminishes our productive fabric, a real engine for job creation and fighting poverty.

In this way, analysts believe that a reconstruction program should be developed that make the spending ceiling and debt ceiling explicit. The exceptional measures that are adopted cannot, in no case, violate the basic control rules typical of the preparation of the Budget. Besides, the principle of payment for use must be restored to all those lines of public expenditure that are easily individualizable and have relevance. It is about substituting taxes for rates or prices.

So, it will be necessary to design new environmental and specific consumption taxes, who still have a long journey. Conversely, reduce general consumption taxes (VAT) in certain goods and services to encourage their demand.

Labor measures

 

In order to avoid job destruction, it is convenient to extend the Ertes in time due to force majeure in the most affected sectors, as well as facilitating their reconversion for economic reasons, in addition to allowing temporary setbacks depending on the de-escalation process. “We also see it necessary to provide the labor market with greater flexibility, without reversing the labor reform”, highlights the decalogue prepared by the Editorial Board of elEconomista.

On the other hand, the document affects the specific support for tourism activity, automotive and construction. Tourism activity will need not only European air transport plans, but also of temporary national impulses that incite to travel to Spain. It is necessary to offer security to our visitors. Could be instrumented temporary local tax cuts.

1) End of the Alarm State and confinement. Need to reconcile health objectives with economic objectives. The State of alarm and confinement have fulfilled their role in containing the pandemic. The hibernation of the economy has caused a great social and economic cost with severe collapses of the GDP and a high increase in unemployment. It is essential to return to normal economic activity with tools that guarantee the containment of new outbreaks of contagion: massive tests, follow-up of infections, social distance, use of mask, disinfection measures in companies, and further.

2) Strengthening of health management with public-private collaboration. It will be necessary to strengthen our health system through public-private collaboration and provide ourselves with strategic reserves of equipment and health materials for future pandemics. Experience has shown that healthcare logistics and infrastructure can be better managed, human and production resources, all this in coordination with other autonomies, as well as with the member countries of the EU.

3) Need to reactivate the confidence of economic agents and avoid the deterioration of the productive fabric through stimuli, paying special attention to SMEs and Self-Employed. The hibernation of the economy has caused companies to face serious liquidity problems. Measures have been taken that have gone in the right direction; credits, ICO endorsements, tax deferral… But it will be necessary expand and create new lines of financing with specific programs to provide more liquidity to companies. No less important in this area will be to streamline administrative processes so that liquidity reaches companies as quickly as possible.

Need for greater fiscal support to companies by extending the approved tax measures, as well as approval of new tax incentives. It is also convenient to assess the elimination of the obligation to maintain employment for six months after the completion of the ERTE.

Special protection for micro-businesses and the self-employed with stimulus measures. The digitalization training offer must be increased given the existing gap. Need to tackle important changes in rural areas with special attention to agriculture, cattle raising, as well as forest management in line with the recommendations of the European Commission.

Need to draw up a reform and investment plan in line with EU guidelines, to access the resources of the EU Next Generation Plan, as well as resorting to all kinds of EU aid.

4) Maintenance of employment. In order to avoid job destruction, It would be convenient extend ERTEs over time due to force majeure in the most affected sectors, as well as facilitating their reconversion for economic reasons, in addition to allowing temporary setbacks depending on the de-escalation process.

We also see it necessary to provide the labor market with greater flexibility without reversing the labor reform. Flexibility is essential for preserving the business fabric and maintaining employment in the medium and long term. Any repeal of the labor reform will be highly costly for the country as a whole and especially highly damaging to the most vulnerable workers. In addition, it will not only discourage internal and external investment, but it will transfer legal insecurity, fact that will be in the sights of any investor. Legal certainty is the great pillar of a country and the authentic guarantee of growth and investment.

5)Specific support for tourism activity, automotive and construction. The tourist activity will need not only European plans in the field of air transport, but also of temporary national impulses that incite to visit Spain. It is necessary to offer security to our visitors. Temporary local tax reductions could be implemented from the supply side. To reactivate the demand it would be beneficial: VAT decreases for hospitality services, catering and transport of passengers and luggage; suspension of tourist fees and deductions in the fee IRPF for national tourism.

A plan for the industrial sector is urgent. The impact that the pandemic will have on the global market will lead to a process of relocation of productive activities. It would be advisable to boost consumer confidence in durable goods with temporary fiscal incentives, for example, to the purchase of homes or cars during the 2020, thereby pushing the rest of the industry.

6) Coordination of economic policies with the EU. Need to follow the recommendations on EU economic policy. Coordination in the opening of borders and in the restitution of the market and the single space of the EU . We must move forward together to repair the damage caused by the health crisis and prepare a better future for the next generation.

7) Approval of a plan to revive the economy in the medium and long term orienting itself towards the construction of a more sustainable country, resilient and fair, advancing in the double ecological and digital transition.

8) Overcome the health crisis, Spain must prioritize the path of fiscal consolidation adjusting all inefficient and unproductive spending. An exacerbated tax increase, Conversely, weighs down economic growth, scares off investment, and diminishes our productive fabric, a real engine for job creation and fighting poverty.

A reconstruction program should be developed that makes explicit the spending ceiling and the debt ceiling. The exceptional measures adopted cannot under any circumstances violate the basic rules of control proper to the preparation of the budget..

The principle of pay-per-use must be restored to all those lines of public spending that are easily individualized and are relevant.. It is about substituting taxes for rates or prices.

It will be necessary to design new environmental and specific consumption taxes that continue to have a long journey. Conversely, reduce general consumption taxes (VAT) in certain goods and services to encourage their demand.

9) It is a priority to undertake structural reforms based on the EU's economic policy recommendations for our country. It is urgent to undertake and implement pending structural reforms. Specific: sustainability of the pension system, educational reform and tax reform. We must improve the qualification of human capital, and implement dual training, at the same time, digitization and innovation should be promoted.

10) Boost of the Foreign Sector through the design of an export strategy and continue betting on internationalization. In this sense, the Government must give certainty to internationalized companies by eliminating tax obstacles and maintaining the current exemption regime.

Source: the Economist.- 12/06/20.