Analysis | Three reform priority

In an environment as uncertain as the present, and to the recomposition of the productive fabric of the advanced economies as a result of the digital revolution

Analysis | Three reform priority

In an environment as uncertain as the present, and to the recomposition of the productive fabric of the advanced economies as a result of the digital revolution, the ecological transition and the threat protectionist, the trust has become a key factor of the situation. The decisions of household consumption, business investment and the business climate, are strongly determined by the perception that governments are capable of adapting to changes and thus prepare for a better future.

This is primarily achieved with reforms, whose necessity is alevosa in our country, after nearly five years of inertia. Of course, some reforms such as the labor or the tax system that may cause resistance among those who fear to be harmed, require heavy doses of dialogue. However, other aim at the correction of inefficiencies, without raise important distributional, and therefore, its completion should not be delayed.

uncertainty Grows...

Uncertainty of economic policy

index (0 to 100)

251

Europe

236,1

142,4

169,1

162,2

121,9

Spain

1 tr.

2018

4th tr.

2018

4th tr.

2019

... and that requires public policy

more effective

social Spending, in % of GDP, and rate of risk of poverty in % of the total number of people, in 2018

poverty Rate

35

Portugal

Greece

30

Spain

Italy

25

Hungary

20

15

Luxembourg

10

8

10

12

14

16

18

20

social Spending

Sources: Funcas on the basis of Davis, Steven J.; and Eurostat.

THE COUNTRY

uncertainty Grows...

Uncertainty of economic policy index (0 to 100)

251

Europe

236,1

142,4

169,1

162,2

121,9

Spain

1 tr.

2018

4th tr.

2018

4th tr.

2019

... and that requires public policy

more effective

social Spending, in % of GDP, and rate of risk of poverty in % of the total number of people, in 2018

poverty Rate

35

Portugal

Greece

30

Spain

Italy

25

Hungary

20

15

Luxembourg

10

8

10

12

14

16

18

20

social Spending

Sources: Funcas on the basis of Davis, Steven J.; and Eurostat.

THE COUNTRY

Grows

uncertainty

... and that requires public policy

more effective

social Spending, in % of GDP, and rate of risk of poverty in % of the total persons, in 2018

Uncertainty of economic policy

index (0 to 100)

poverty Rate

35

Portugal

251

Europe

236,1

Greece

30

Spain

Italy

142,4

25

169,1

162,2

Hungary

20

121,9

Spain

15

Luxembourg

1 tr.

2018

4th tr.

2018

4th tr.

2019

10

8

10

12

14

16

18

20

social Spending

Sources: Funcas on the basis of Davis, Steven J.; and Eurostat.

THE COUNTRY

An example is the placement of unemployed people, a system that suffers in Spain dysfunction structural. Proof of this, some sectors are facing difficulties to find qualified staff, a situation incomprehensible, having in regard that our unemployment rate still hovers around 14%, and that could create bottlenecks in the expansion.

best practices, both in our country and at the international level, show that the employment offices can play a critical role in the “activation” of the unemployed at risk of exclusion. The regularity of the contacts between counsellors and the unemployed in the framework of support plans individualised is one of the ingredients of success in the placement. Another is the deployment of personnel of the offices in the world entrepreneurthe, so to identify the needs of the labour market and the obstacles to hiring. It is evident that the creation of a platform of employment, thanks to the digital technology and artificial intelligence, would improve the adequacy between supply and demand and help reduce unemployment, as shown by the experiences conducted in Denmark and the United Kingdom.

Another reform that does not appear to be traumatic is the financing of the companies. The accounting standards and established practices in many countries such as ours tend to privilege the tangible assets –in particular those associated with the “brick”—as collateral to obtain financing. This situation is detrimental to innovative companies in the sectors of technology and small companies that, despite their growth potential, are not backed by a sufficient volume of physical assets. According to an OECD study, the recognition effect of granting of credits of intangible assets has facilitated innovation and economic activity in the US and south Korea. In France, the number of start-ups of artificial intelligence increased by 38% in 2019, the result of the creation of “accelerators” of innovation and the rationalization of taxation on self-employment and small business.

Finally, due to the probable creation of a european fund for the ecological transition (about 100,000 million, for the whole of the budget period), it would be useful to streamline the private-public cooperation in our country, and at the same time create a taxation green that provide predictability to the private investors. The gradualness of these settings is key to preventing a sharp and counterproductive increases in non-renewable energy, and encourage the emergence of viable alternatives.

These, and many other reforms of efficiency (reduction of tax exemptions, portability of pension rights between different types of employment, harmonisation of the non-contributory benefits, etc), they have little impact on the public purse. And yet, if we take care of the design, they work. Its quick start-up would take away the bad omens, would slow the deceleration and open the way to reforms which, though unavoidable, conflicts of interest or dilemmas between different objectives.

Deficit

According to the financial accounts released this week by the Bank of Spain, the deficit of the administrations reached 2.8% of GDP until the third quarter of 2019, surpassing the values recorded a year before. This trend effectively closes the possibility to comply with the deficit target of 2% for the year as a whole. For its part, the private sector showed a surplus of 4.9%, in comparison with a year before, but still enough to generate a solid surplus from the outside, above 2% for the seventh consecutive year.

Updated Date: 19 January 2020, 03:00

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