Going for Growth - Spain by OECD

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Spain The gap in GDP per capita relative to the upper half of OECD countries remains large, reflecting differences both in labour productivity and labour utilisation. Total factor productivity growth has been sluggish. Income inequality has increased since 2007 and remains above the OECD average, partly driven by high rates of unemployment and the fall in incomes of households at the bottom of the income distribution. Spain's emissions of greenhouse gases per capita are below the OECD average. Progress on Going for Growth 2017 priorities has been limited. Changes to corporate and labour taxes have made the tax system more growth-friendly, but there remains ample room to improve the progressivity of the tax system. Reforms of activation policies have continued throughout 2017-18, but implementation is lagging. While more should be done in this area, especially to help the long-term unemployed, recognising the reforms already taken this priority has been replaced with a new priority on innovation. This is justified by weak productivity growth and the substantial decline in innovation spending during the crisis. Boosting inclusive growth will hinge on a higher employment and productivity gains. Productivity growth can be raised via shifting the tax burden to less distortive taxes, bolstering competition, strengthening educational outcomes and boosting innovation performance. Increasing labour mobility and improving access to vocational education would lower labour market inequalities and boost skills. Growth performance, inequality and environment indicators: Spain Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate

A. Growth

Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2002-08 1.4 1.6 1.8 0.0 -0.2 0.0 0.6 -0.6 -0.3

2012-18 2.0 1.5 -0.3 2.0 -0.1 0.6 0.1 0.5 -0.1

GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

Gap to the upper half of OECD countries5

Per cent 0 -5 -10 -15

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

C. The gap in GDP per capita remains large

Level

Annual variation (percentage points)

-20

2016 34.1 (31.7)*

2013-16 -0.1 (0)*

6.2 (7.6)*

0 (0)*

-25

2016 6.1 (10.9)* 0.2 (0.3)* 0.7

Average of levels 2010-16 6.4 (11.3)* 0.2 (0.3)* 0.7

-30 GDP per capita

GDP per hour worked

-35

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases. StatLink 2 https://doi.org/10.1787/888933955370

ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH ÂŠ OECD 2019

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Policy indicators: Spain A. Graduation rate in upper secondary education is low

B. Investment in knowledge-based capital is comparatively low

2016

As a percentage of business sector gross value added, 2015

KBC assets in National Accounts including software and R&D Other KBC assets including organisational capital and training

Other KBC assets 15

70 10 60

SPAIN

Advanced economies

SPAIN

Advanced economies

Source: Panel A: OECD, Education at a Glance Database; Panel B: OECD, OECD Science, Technology and Industry Scoreboard 2017. StatLink 2 https://doi.org/10.1787/888933956244

Beyond GDP per capita: Spain A. Inequality remains higher than in most advanced economies Gini coefficient, 2016 or last available year¹

SVK, 24.1

SPAIN, 34.1

ZAF, 63.0

Advanced economies median, 29.7

Emerging economies median, 46.2

B. Exposure to fine particulate matter is lower than in advanced economies Percentage of population exposed to PM2.5, 20172

% SPAIN Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database. Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter. StatLink 2 https://doi.org/10.1787/888933957118 ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019

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Spain: Going for Growth 2019 priorities Improve the efficiency and progressivity of the tax system. Taxation remains tilted towards labour income, and various exemptions and deductions erode the income and value-added tax bases. •

Actions taken: Measures to broaden the corporate income tax base were introduced in 2017 and taxes on alcohol and tobacco were increased. An electronic VAT filing system came into effect in 2017 to address VAT fraud. The labour tax wedge was reduced in 2018 via increasing the threshold for income exempt from taxation.

•

Recommendations: Broaden the tax base by narrowing exemptions to income taxes. Abolish reduced value-added tax rates that are regressive. Increase taxation of fuels to better reflect emissions of CO2 and other pollutants. Reduce employer social security contributions for low-wage workers hired on a permanent contract.

Improve education outcomes. Despite declining, early school leaving rates remain high, and there is a need to better align skills to future labour market needs. •

Actions taken: The implementation of the 2013 reform of the education and training system (LOMCE), which aimed at more school autonomy and development of vocational education and training (VET), was completed in 2018, except for changes to the evaluation framework. Provision of information to increase the labour market relevance of tertiary education has also increased in 2018. In 2017, rules on the planning and evaluation of the VET system were improved.

•

Recommendations: Improve the quality of teaching through better university and on-the-job training. Continue the development and modernisation of VET, expand dual VET and foster a greater role of employers in training students and designing curricula. Increase university specialisation.

*Enhance R&D spending and innovation. Low R&D spending adversely affects innovation performance and productivity growth. •

Recommendations: Strengthen the evaluation of innovation policies. Partially reallocate funds from loans to R&D grants based on performance. Give the recently activated R&D Public Policy Network a strong mandate to further increase coordination of regional and national innovation policies to avoid duplication. Encourage greater scale and specialisation of universities to raise the quality of innovation, by extending performance based resources allocation and the application of international peer review and by providing more career opportunities for highly qualified researchers.

Reduce labour market duality. A high share of temporary jobs increases precariousness, limits labour mobility and increases poverty. •

Actions taken: To avoid abuse of temporary jobs, in 2018, a new legal framework for labour supervisors was introduced and resources allocated to supervisors increased.

•

Recommendations: Pursue greater convergence of termination costs between permanent and temporary contracts. Continue efforts to fight against the abuse of temporary contracts.

* New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.

| 167 Reduce regulatory differences across regions and regulatory barriers to firm growth. Regulatory barriers that depend on the size of firms and barriers to operating across regions, limit firm growth and productivity. •

Actions taken: Measures were introduced in 2017 to assess and update statutes of professional associations in order to eliminate unjustified and disproportionate barriers to access in professional services. Supporting guidelines for implementing the law on market unity have been issued.

•

Recommendations: Eliminate the existing regulations that depend on the size of firms, as needed. Continue to implement the Market Unity Law, increase its transparency, and increase cooperation across different levels of government for its effective implementation. Improve the functioning and governance of professional bodies related to professional services.