Country Report Spain 2016

Source: European Commission
Type of item: Recommendation / Analysis
Date: 28/2/2016
Upcoming commitment expected by: 28/2/2016

The Spanish economy has experienced a significant turnaround in recent years, also thanks to reforms undertaken in response to the crisis.

Structural reforms helped ease existing rigidities in labour and product markets. The successful completion of the financial assistance programme facilitated the repair of the banking sector.

External tailwinds and reforms underpinned an increase in confidence in the Spanish economy, and growth resumed in 2013.

The recovery strengthened in 2015, with growth well above the euro-area average. However, there are downward risks to this growth outlook mainly stemming from the external sector.

 

Assessment:

1. GROWTH AND COMPETITIVENESS

1.1 R+D and the knowledge society

- State Agency for Research, once created should be operational

1.4 Education

- Cooperation between businesses and universities has slightly improved over the past five years, partly supported by the legal framework approved in 2011

- The reform of vocational education and training (VET) has boosted its attractiveness and enrolment rates, but cooperation between public authorities, education providers and employers is still a challenge

2. COMPETITION AND REGULATION

2.2 Regulation of product and service markets

- The risk of contingent liabilities for public finances stemming from the electricity and gas systems has been reduced

2.3 Red tape and business environment regulation

- Some progress has been made to improve the business environment: remove barriers preventing companies from growing and improve SME's access to bank credit and non-bank financing

- The new framework set by the insolvency law constitutes a major improvement

- Some progress has been made in accelerating the implementation of the law on market unity. However, the rate of completed amendments at regional level is around 17%

3. LABOR MARKET

 3.1 Labor market regulations

- Labour market reforms have increased the responsiveness of employment to growth. Job creation has resumed at an earlier phase of the recovery

- The latest framework for collective bargaining agreements has been a step forward in wage setting. However, the number of workers covered by firm-level agreements is still very low

- The reforms adopted between 2012 and 2014 seem to have cushioned the fall in employment and had a positive effect on job creation

- Incentives to promote permanent hires show a limited impact, as the take-up of the new measures remains low

3.2 Active Labour Market policies

- Some progress has been made to increase the quality and effectiveness of job search assistance and counselling, including as part of the tackling youth unemployment

- Single Job Portal, at present the number of vacancies uploaded remains low

- Only limited intermediation services are carried out by private agencies on the basis of grants awarded by the national employment service

- National Youth Guarantee System (NYGS) is not yet delivering the expected results and the share of registrations remains low

- Limited progress has been registered in ensuring effective minimum income support schemes that allows smooth transition to the labour market

- The implementation of the Activation Strategy 2014-2016 is progressing very slowly

- Coordination between the central and regional labour market institutions is not proving to be effective in providing individualised support and getting people (back) into work

- Cooperation between employment and social services is very uneven between regions, making it difficult to ensure the provision of coordinated services for the long-term unemployed

4. FINANCIAL SYSTEM:

 4.1 Recapitalization and Restructuring

- Spain has made substantial progress to finalize the reform of its financial sector

5. FISCAL POLICY AND PUBLIC ADMINISTATION

5.2 Fiscal consolidation and fiscal reform

- Progress in the area of public finances has been limited

- There has been progress in the preparation of regional government's multiannual budget plans starting in 2016

- Spain's independent fiscal institution (AIReF) is now well-established. However, some features of its regulatory framework may hamper the delivery of its tasks and weaken the impact of its assessments

- Despite its progressive design, personal income taxation reform has a very limited impact on the high level of income inequality, and may even contribute to increase it slightly

5.3 Reform of the Public Administration

·         The operational independence of the advisory council for infrastructure is weak and depends primarily on resources from the Ministry of Public Works. It is unclear, how the new framework would prevent overinvestment in railway infrastructure.

- There has been progress in the area of transparency of administrative decision making,  the fight against corruption and accountability of regional public finances

6. WELFARE STATE

6.2 Health system

- There has been only limited policy action to rationalise hospital pharmaceutical spending

6.3 Other welfare state reforms

- National action plan of Social Inclusion released in November, impact assessment remains weak.

- Spain remains one of the Member States where the impact of social transfers on the reduction of poverty is the lowest, in particular for child poverty

- Cooperation between employment and social services is very uneven between regions, making it difficult to ensure the provision of coordinated services for the long-term unemployed

- There is a lack of ‘one-stop shops' to handle social support and/or activation programmes

- The delivery of family support schemes (notably affordable early childhood education and care, and long term care) remains poor and regional mobility has not improved

- There is scope to improve coordination between central and regional administrations as regards not only implementation but also monitoring and evaluation Plan for Infancy and Adolescence

This document includes the following recommendations in the corresponding reform areas

1. GROWTH AND COMPETITIVENESS

1.1 R+D and the knowledge society

Challenges are still present regarding R&D, innovation, and technological content

- Coordination of central and regional government Research and Innovation policy are needed for those policies to achieve greater economic impact

- Reinforced incentives for public sector researchers to work in the business sector and for the exploitation of public research results in the private sector could enhance public–private cooperation

- Recommendations of changes to the structure and management of research careers to attract and retain talent and foster mobility between research institutions have not been followed up

- Linking resource allocation for research institutes and universities to results has not been followed up. Incentives for research performance are weak.

- Increase the proportion of competitive funding has not been followed up

1.4 Education

- Improving education and skills is a critical element for Spain to transform its economic growth model

- Increasing the level and quality of education is critical to reduce structural unemployment and support the reallocation of resources towards more productive activities

- Stronger cooperation between universities and the business sector remains also a challenge, to increase the employability of graduates in all sectors and foster innovation as a driver for sustainable growth

- Mobility between universities and the private sector is not well developed, to the detriment of the quality and of the relevance of skills developed in tertiary education

- The number of educational institutions (728) and companies (4 878) offering dual VET still remains low compared with the overall participation in VET programmes

- The importance of teachers' role in the improvement of the quality of education is expected to shape up future legislative reforms. Teachers need specific training and teaching conditions better adapted to implement new pedagogical approaches and achieve the objectives of the reform

2. COMPETITION AND REGULATION

2.2 Regulation of product and service markets

- Competition-enhancing reforms in the service sector can result in particularly large productivity gains

- Ports still do not have sufficient autonomy in their charging policy

- The completion of electricity and gas interconnectors with France is crucial for ensuring security of supply and improved functioning of energy markets

- Insufficient interconnection capacity limits security of supply, prevents renewable energy system production from reaching its full potential, and represents a barrier towards price convergence with neighboring countries, which, in turn, has a negative impact on consumers

- It is important that high-speed trains are adapted to mixed passenger and freight traffic

- Railways. A detailed plan to deploy UIC-gauge lines and improve interoperability of freight corridors is still missing

- Mechanisms to ensure better strategic planning of transport infrastructure have been introduced, but some of them remain weak.

2.3 Red tape and business environment regulation

- Regional governments should adopt the implementing acts to ease establishment, expansion of retail outlets and liberalize shop opening hours

- The implementation of the law on market unity by regional governments is critical to its success

- It is required assessing and simplifying the stock of existing regulations and the flow of new legislation

2.4  Professional services

- No progress has been made in adopting the planned reform of professional services 

3. LABOUR MARKET

 3.1 Labor market regulations

- High levels of long-term unemployment, skills mismatches and labour market duality remain serious challenges that are not fully addressed in the current policy framework

- Challenges are still present, mainly in the area of duality, on the system of hiring incentives

3.2 Active Labour Market policies

- The capacity of the public employment services to provide effective, individualised counselling and job search assistance is still limited. No specific measures have been taken so far to increase their assistance especially for those further away from the labour market

- Implement measures targeting young people not in employment, education or training (NEET) grouped in the four objectives of a better activation, enhanced employability and skills, increased entrepreneurship and increased indefinite hiring

- There is no information about the effectiveness of the Plan for Professional Reskilling PREPARA Plan, set up to upskill and reskill the unemployed who are no longer eligible for social benefits

- Spending on active labour market policies remains low, despite the increase envisaged for 2016

- No decisive measures have been taken to promote labour market participation and regional mobility

- Cooperation between regional public employment services and private placement agencies remains marginal

- Limited coordination between employment and social services hampers the effectiveness of activation measures, particularly for people out of work including the development of personalised support for the long-term unemployed and those further away from the labour market

- The Common Employment Services Portfolio lags behind implementation

4. FINANCIAL SYSTEM

 4.1 Recapitalization and Restructuring

- There was no further progress on privatisation of state-owned banks

5. FISCAL POLICY AND PUBLIC ADMINISTRATION

5.2 Fiscal consolidation and fiscal reform

- Despite the recommendations made by Spain's independent fiscal institution (Independent Authority for Fiscal Responsibility -AIReF), no preventive measures set out in Spain's stability law have been applied in 2015 on regions at risk of non-compliance

- Property taxation relies to a relatively high degree on transaction taxes rather than recurrent taxes. No major policy changes have been introduced in the area of property taxation in recent years

- The Spanish tax system features elements that can hinder investment

- Majority of regional governments keep failing to include in their draft budgets and general accounts for 2016 information on the entirety of regional entities coming within the scope of the stability law

- Further strengthening of regions' budgeting practices and of the regulatory framework of Spain's independent fiscal institution, combined with a rigorous implementation of the stability law's preventive and corrective measures would help ensure compliance with the fiscal, debt and expenditure rule targets

5.3 Reform of the Public Administration

- Some steps have been taken to provide for a more stringent cost-benefit analysis of transport infrastructure projects, but there is no certainty that redundant or unnecessary investment will be avoided in the future

- Spain does not have dedicated legislation protecting whistle-blowers, other than in the areas of unfair dismissal and discriminatory treatment of employees

- Lobbying is unregulated in Spain; there is no mandatory registration or obligation of public servants to report contacts with lobbyists, thus reducing transparency in this field

- Insufficient control mechanisms hinder the implementation of public procurement rules and may create opportunities for corruption

- There remains room for achieving greater convergence of budgetary codes, budgetary documents, accompanying tables and public accounting rules for regional governments in the interest of transparency

- Judicial system. Regarding digitalisation reforms, the lack of adequate human and material resources and the coexistence of different methods is an obstacle for rapid and uniform implementation

6. WELFARE STATE

6.2 Health system

- Improve transparency of procurement of healthcare services at regional level, where there is often a lack of competition between tenderers

6.3 Other welfare state reforms

- No progress has been registered so far in streamlining income support schemes with the aim of ensuring adequate coverage of those in need