The OECD advises Spain to raise green taxes, VAT and improve employment policies | Economy

The OECD advises Spain to raise green taxes, VAT and improve employment policies | Economy
The OECD advises Spain to raise green taxes, VAT and improve employment policies | Economy

The Organization for Economic Cooperation and Development (OECD) joins the club of organizations that predict that this year the Spanish economy will perform well. It foresees an increase in the Gross Domestic Product (GDP) – which will rise by 1.8% in 2024 -, less inflation and also a reduction in unemployment. However, the forecasts published this Thursday also contain a small catalog of recommendations so that the country continues on the path of sustainable growth and can comply with the new European fiscal rules. The multilateral organization based in Paris shows its concern about the high level of public debt in Spain, although it praises the work carried out in recent years to contain the deficit. “The public debt-to-GDP ratio is high and spending is heavily weighted toward pensions, to the detriment of items that improve growth and aging-related spending is expected to increase.”

Among the measures proposed to face these challenges, the increase in Value Added Tax (VAT) stands out, as well as taxes related to the environment. In addition, it recommends that measures be adopted to improve productivity, among which educational reinforcements and the promotion of technology stand out. Regarding the labor market he points out: “A renewal of active labor market policies is necessary to improve the efficiency of job matching and address skills mismatches.” The increase in tax rates would serve, according to analysts, to guarantee fiscal consolidation. While labor policies condition national strength in the medium term.

To contain fiscal costs in the short term, the OECD sees it necessary to limit the impact of the aid that is still preserved from the social shield deployed in 2022 to the most vulnerable groups – today the discounts on public transport, the reduction VAT for basic foods that is valid until June 30 and some energy limits such as the maximum price of a butane cylinder. However, if public spending pressures are to be mitigated in the long term, it is necessary for the Administration to ensure additional revenues to public coffers through “gradually expanding the value added tax base” and “improving efficiency.” of spending.”

For now, the extension of the 2024 General State Budgets and the partial extension of anti-crisis aid slow down, according to the agency, the fiscal objectives. Specifically, it foresees that the public deficit will decrease to 3.3% in 2024 and 2.6% in 2025, while the debt will drop to 107.1% of GDP in this year and 106.7% in the next. They are more optimistic forecasts than those considered in their previous reports, but they are still above those sent this week by the Executive to Brussels, according to which the deficit will fall to 3% this year and 2.5% the next, while that the debt will remain at 105.5% and 104.1%, respectively.

The OECD diagnosis is more benign with economic growth. It improves its projections by three tenths compared to February, predicting that the country will expand by 1.8% in 2024, above its main partners in the euro zone. Private consumption will be the great national driver, supported by a resilient labor market – it includes an unemployment rate of 11.7% – and increases in real income. The moderation of inflation will also play in its favor, which will reduce to 3% by the end of the year. Although investment will remain weak, it will gain prominence in the following year thanks to the continuous implementation of the Recovery, Transformation and Resilience Plan. No shocks are foreseen in foreign trade, although an escalation in geopolitical conflicts may reduce demand from Spain’s main partners. This year’s carryover effect will allow GDP to increase by 2% in the following year, while inflation will moderate to 2.3%.

Despite the undeniable muscle of the national economy, the club of rich countries warns that, to promote sustainable growth, it is necessary to increase productivity by promoting innovation, improving the educational level of the population and promoting additional reforms in the labor market . Specifically, it recommends improving hiring and reducing the skills mismatch that workers have, that is, ensuring that they have the necessary qualifications for the jobs that are created. Also remember that slow productivity growth, low investment and an aging population prevent a greater increase in GDP.

Leading Europe

With an update, the organization once again gives a good grade to Spain compared to the rest of the eurozone countries, which will barely grow 0.7% this year and 1.5% in 2025 despite the fact that both figures have been revised up two tenths compared to the February report. The omens for Germany are worse: it reduces the growth estimate for 2024 by one tenth, to 0.2%, and maintains 1.1% for the next year. The prospects for France are also modest, although they improve slightly (GDP rises by one tenth for this year, to 0.7%, and by two tenths next year, to 1.3%).

The reduction in inflation, in any case, should help shore up activity in the region. Several Member States are expected to benefit from an early disbursement of European funds and private consumption is expected to improve thanks to rising wages and the recovery of purchasing power. In parallel, fiscal policy will tighten over the next two years as the support measures deployed during the energy crisis are gradually withdrawn. In a more global view, the OECD predicts that world GDP will increase to 3.1% in 2024 and 3.2% in 2025.

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