Europe approves Spain's 'restructure plans' for release of €69.5bn in recovery funds

THE EUROPEAN Commission has approved Spain's 'recovery plan' post-pandemic, meaning it is now entitled to funding from the bloc which all member States who applied in time are able to access.

Spain is due €69.5 billion between 2021 and 2026, and has pledged around 40% of this towards climate change-related investment, 28% towards the digital transition, and the bulk of the rest towards 'social cohesion'.

Commission president Ursula von der Leyen (pictured left) said the plans presented by Spain's leader Pedro Sánchez (pictured right) would allow the country to 'arise stronger than ever before', and praised the 'excellent cooperation' with Europe by Spanish authorities.

Sánchez, who calls the project approval 'an historic day' and the plans themselves a chance to 'build a better future', says he will call a conference with all the country's regional presidents in July to discuss the finer detail of how it will be put into practice.

'Fundamental' reworking of 2012 labour reform

In exchange for the funds, Spain is required to make a series of structural overhauls in its job market, pensions and taxation systems, among other areas.

This will involve scrapping key elements of the controversial 2012 labour reform, brought in by the previous right-wing PP government.

The reform nine years ago made it easier and cheaper for companies to fire employees, even on the grounds of ill health evidenced by medical notes after a certain percentage of absences – ostensibly, it was aimed at allowing companies under threat of complete shutdown to stay open by making a handful of redundancies without too many barriers or extra costs, on the basis that it was better for some of its employees to lose their jobs than for all of them to; but the reform also opened the door to the minority of less-scrupulous employers being able to shed staff with relative impunity and to use coercion to keep wages low and working conditions unfavourable.

Unions and various experts in economy and business criticised the reform from the start, warning it would drive down already-low salaries and make the job market more precarious and less secure than ever.

Ending the precarious nature of jobs, especially in young, newly-qualified adults, is one of the current left-wing coalition government's key aims, and now it has been told its plan to axe the fundamental parts of the 2012 reform cannot be delayed any longer: It must happen this year.

Among the areas Brussels says need an immediate restructure are the limitations the reform places on collective bargaining via unions, and changes to guarantee the rights and wellbeing of people working for sub-contracted companies.

Also, Spain's work minister Yolanda Díaz intends to reduce the number of job contract types to limit temporary employment only to cases where this is strictly necessary or in the interests of the employee as well as the firm, and wants to create a permanent mechanism similar to the temporary lay-off or 'furlough' scheme introduced during lockdown – where employees can be sent home, claim unemployment benefit without affecting their existing contributory jobseekers' allowance built up, and taken back on by the company once business improves, with their jobs guaranteed during their time off.

Brussels has highly praised the temporary lay-off, or 'ERTE' scheme, which has enabled businesses to avoid shutting down altogether and prevented mass redundancies.

Ursula von der Leyen says it 'provides in-house flexibility for firms and stability for employees' whilst preventing mass unemployment during 'future cycles of downturn or structural crises'.

The pension reform is not expected to take place until 2022, and a tax reform in 2023.

Pensions: Incentives for delaying retirement?

As yet, the pension reform has not been agreed – ideas have been floated, but found to be unworkable, such as offering an extra €12,000 per year to each pensioner who decides to delay their retirement, payable for every additional year they work.

This could still happen in some format, though: Pensions minister José Luis Escrivá is working on incentives for employees continuing to work beyond their specific retirement age, and they could be in place as early as this year.

It may prove more successful than forcing up the national retirement age, which is currently set at 67 for the majority of the working population – it would allow those who do not consider it worthwhile in overall wellbeing terms to carry on beyond their late 60s to retire on the pension pot they had budgeted for, but for those for whom their pension is not enough or who would like to be wealthier when they stop work, they would have the choice to continue and build up more money.

One of the more controversial aspects of the planned pension reform is that of increasing the current calculation period beyond 25 years – although 35 years of contributions are needed to claim a full pension, the actual amount paid is worked out according to contributions in the final 25 years of a person's working life; until a few years back, it was the last 15 years, and around the beginning of the century, 12 years.

But this is likely to go ahead despite opposition, probably in the final quarter of 2022.

By around the same time, the maximum contribution level to a State pension will start to rise, and continue to do so gradually.

In Spain, State pensions are not exclusively, but almost solely, the way retirement is financed – company pensions are extremely rare, as firms contribute towards employees' State pensions on their behalf, and private pensions remain thin on the ground; partly because the State pension has, historically, been enough to live on, although they are starting to become more popular as a result of a rise in job insecurity that leaves large gaps in workers' contributions.

Tax reforms 'will probably target big companies'

Tax reforms have not been described in detail, but are very unlikely to feature a blanket value-added tax (IVA) rise or a hike in income tax across the board, since the government's coalition partners, Podemos, would not support any increase that reduced spending power for low-to-middle-income earners.

Instead, a higher percentage may be levied on company profits, targeting mainly the huge national and multinational corporations rather than the small, family-run entities that make up nearly three-quarters of Spain's businesses.

A 'harmonisation' of asset tax, so that all regional governments are singing from the same hymn sheet, and a new taxation structure for 'emerging economic activities' are expected.

Other moves which have not been confirmed but will be 'examined in detail' next year are also controversial and have met with widespread opposition: Extra tax on new car registration, on road use, or even tolls returned to some motorways.

The latter may not, however, take off, given that the transport minister, José Luis Ábalos, has said he will only install tolls where local councils in affected areas 'agree' – and many of these, especially in parts of the country with no alternative routes or high-speed rail, are unlikely to give the nod.

If the investments proposed are made in line with the plans presented to Brussels, the Commission predicts that Spain's GDP would increase this year by an additional 1-1.5 percentage points, and from 2022 to 2024, from 2-2.5 percentage points on top of growth already predicted pre-funding.

Also, says Ursula von der Leyen, the proposed structural reforms would 'contribute to increasing growth potential'.