Parties Agree to Reduce Deficit, Raise Minimum Wage in Spain

Spain’s two major parties agree on a budget plan for 2017 that raises both taxes and the minimum wage.

Spanish economy minister Luis de Guindos arrives for a meeting in Brussels, July 7, 2015
Spanish economy minister Luis de Guindos arrives for a meeting in Brussels, July 7, 2015 (European Council)

Spain’s ruling conservative party announced a series of budget policies on Friday that are meant to placate the European Commission and expected to pass parliament with the support of the opposition Socialists.

Economy Minister Luis de Guindos told reporters the government that came to power in October had agreed to reduce the deficit by another €16 billion, mostly by raising taxes. The extra austerity measures should bring the shortfall down to 3.1 percent of gross domestic product in 2017.

Spain has consistently missed its fiscal targets since the start of the European debt crisis. The European Commission has always issued stern statements but never used its power to fine Madrid.

Most recently, the EU executive lamented that Spain had failed to take “effective action” to bring its deficit under the 3-percent deficit ceiling. Yet it balked at imposing a penalty of .2 percent of national economic output, or €2 billion.

Higher taxes

Among the revenue increases are €4.3 billion in higher taxes on businesses and €4.6 billion in higher taxes on alcohol, tobacco and sugary drinks.

Cracking down on tax evasion is expected to raise another €2 billion.

The rest of the €16 billion should come from higher growth. The Spanish economy is projected to expand 3.2 percent this year, up from 2.9 percent in earlier forecasts.

Unemployment is now expected to fall to 12.8 percent by 2019, down from 19 percent currently.

Deal

De Guindos’ People’s Party lacks a majority in parliament. It rules in an informal coalition with the liberal Ciudadanos but still needs the opposition Socialist Workers’ Party for a majority.

They have agreed to support the tax hikes in exchange for an 8 percent increase in the minimum wage as well as more financial leeway for Spain’s regions, which already enjoy a high degree of autonomy.

This augurs well for the political stability of Spain, which was left without a government for most of 2016 when the two major parties — neither of which won a majority in elections — failed to do a deal.