Key Things To Know About Rajoy’s Economic Plan

Key Things To Know About Rajoy’s Economic Plan

Key Things To Know About Rajoy’s Economic Plan

Spanish Prime Minister Mariano Rajoy is on a mission to boost the country’s nascent economic recovery and cut its jobless rate, one of Europe’s highest. And it seems that his economic plan is paying off!

In the second quarter, the unemployment rate fell to 24.5 per cent, its lowest level in two years, lifted by new jobs in the service sector. The quality of employment also improved, with 180,200 contracts signed being permanent ones. Furthermore, most economists are now forecasting an acceleration in GDP growth over this year and through 2015.

So what are the linchpins of Rajoy’s successful strategy? The two key ones are: cutting taxes and investing in growth industries like new technologies.

LOWER CORPORATE TAX TO LURE FOREIGN INVESTORS

As part of a new fiscal reform, the government has pledged to reduce corporate tax from 30 per cent to 25 per cent over two years. And this may drop to 20 per cent in the future. Given that Spain has long had one of the highest corporate tax rates in the European Union, the measure has gone down well with big local companies and will attract overseas investment.

Spaniards’ personal tax burden will also be eased and Rajoy has announced a move to exempt people who earn less than 12,000 euros from paying tax. Investment figures largely in Rajoy’s vision of an economic recovery, hence the decision to channel around 3.5 billion euros of public funds in reforms to boost entrepreneurship and provide credit for businesses focusing on innovation. An additional about 3 billion euros will come from private funding sources.

Amongst job creation incentives, the government plans a 3 percentage point cut in the amount of social contributions, such as for pensions, that firms pay out for employees. And the self-employed tax rate will be cut to 19 per cent from 21 per cent.

EYE ON THE DEFICITS

Getting the nation’s jobless back into the workplace is paramount for Rajoy, but reining in Spain’s public deficit is also a top priority if he wants to keep the European Commission on his side!

For end-2014, the government is targeting a deficit, including local administrations, of 5.5 per cent of GDP, compared with 6.6 per cent end-2013. More public-private initiatives, like the joint funding to boost growth industries, are on Rajoy’s agenda to contain public spending. The budget shortfall has fallen from a double-digit peak in 2011.

The government has also taken measures to deal with the mounting costs of subsidies for Spain’s renewable energy plants. A clean energy bill will help eliminate the growing gap between the system’s revenues and costs. Another deficit to keep an eye on!

For information on investing in Spain, contact corporate law firm Argali Abogados.

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