COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for SPAIN Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2014 national reform programme and delivering a Council opinion on Spain’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Spain, budget deficit, economic convergence, economic forecasting, economic reform, economic stabilisation, financial control, job creation, multilateral surveillance, public debt, social situation, stability programme, structural adjustment













EUR-Lex - 52014SC0410 - EN











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52014SC0410

COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for  SPAIN Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2014 national reform programme and delivering a Council opinion on Spain’s 2014 stability programme /* SWD/2014/0410 final */









CONTENTS
Executive summary..................................................................................................................... 3
1............ Introduction.................................................................................................................. 5
2............ Economic
situation and outlook................................................................................... 5
3............ Challenges
and assessment of policy agenda............................................................... 6
3.1......... Fiscal
policy and taxation............................................................................................. 6
3.2......... Financial
sector........................................................................................................... 19
3.3......... Labour
market, education and social policies............................................................. 22
3.4......... Structural
measures promoting sustainable growth and competitiveness................... 28
3.5......... Modernisation
of public administration...................................................................... 36
4............ Conclusions................................................................................................................. 38
Overview table.......................................................................................................................... 40
Annex........................................................................................................................................ 47

Executive
summary 

Progress on the adjustment of macroeconomic imbalances and advances
in the policy reform agenda are helping to rebuild confidence on the Spanish
economy. Spain has taken measures to strengthen the
financial sector, restore competitiveness and shore up public finances. The
private sector is gradually reducing its debt, and the current account balance
has turned into a small surplus. Amid recovering confidence, easing financing
conditions (although still relatively onerous for smaller borrowers) and
reduced economic uncertainty, the economy pulled out of a long recession in the
third quarter of 2013 and employment stopped declining at the end of 2013. GDP is expected to grow by 1.1 % this year in the Commission
2014 spring forecast, as exports remain robust and domestic
demand stops being a drag on growth.. Employment is
expected to progressively gain some traction over 2014 and 2015, prompting a
moderate fall in unemployment. 
However, the recovery of the Spanish economy is at an early stage
and remains fragile. High levels of private and
public debt and external liabilities and very high unemployment make the
economy vulnerable and constrain future growth prospects. The recovery can be
sustained only if it does not result in a halt or reversal of the correction of
imbalances and the economic adjustment process. This calls for a continuation
of structural and fiscal policies that support an efficient reallocation of
resources and macroeconomic stability, hence underpinning sustainable growth
and employment going forward.
Overall, Spain has made some progress in addressing the
country-specific recommendations of 2013. Fiscal
consolidation continued in 2013 and the national reform agenda has advanced
significantly, with many important reforms being passed into law, broadly in line with the plans in the 2013 Spanish national reform
programme and stability programme. Notably, Spain has adopted reforms on pensions, healthcare, independent fiscal
institution, public administration, internal market, financial sector, non-bank
financial intermediation, labour market, corporate insolvency, liberalisation
of the housing rental market, and to tackle the electricity tariff deficit. The
implementation of many of these reforms required
follow-up actions and is thus ongoing (in some cases it is still at an early
stage), and not devoid of risks, including from the need of joint delivery by
various tiers of government in many reforms. Moreover, some key reforms, e.g.
regarding professional services and associations, have been delayed.
The 2014 national reform programme confirms the reform agenda,
providing further detail on reforms still to be adopted and focusing on
implementation. Building on the measures included
in the 2012 and 2013 programmes in key areas such as business environment, the
labour market and network industries, the 2014 programme aims at deepening the
reforms, favouring economic recovery and job creation, and emphasises the need
for a swift and full implementation of the measures already adopted. Amongst
the key new measures are a far-reaching reform of the tax system, planned to be
adopted in the second half of 2014, measures to promote democratic regeneration
and fight against corruption, the reform of active labour market policies and to
address social issues, and measures to improve access to bank and non-bank financing
for small- and medium-sized enterprises. For most of these measures, however, a
concrete timeline is missing. 
Despite the recent achievements, there are still important
challenges to be addressed in several policy areas: 
·        
Public finances: Fiscal
consolidation remains a priority to reduce the still high general government
deficit (7.1 % of GDP in 2013, of which 0.5 % of GDP related
to bank recapitalisations) and put the high general
government debt (around 100 % of GDP) on a declining path. While in the stability programme the headline deficit is planned to
be brought below 3% in 2016, which is the deadline set in the Council's
recommendations in the context of the excessive deficit procedure, the planned
fiscal efforts fall short of what recommended by the Council. Moreover, the deficit and debt adjustment
paths are subject to downside risks in particular in 2015 and beyond, relating
in particular to a somewhat optimistic macroeconomic scenario underpinning the
budgetary projections and from the fact that concrete measures to reach the
deficit targets from 2015 onwards are not yet sufficiently specified, notably regarding
the changes to tax legislation within the framework of the planned tax reform. Spain is enhancing its public finance management, notably with
measures taken to underpin the sustainability of the pension system, control healthcare
expenditure, reform the public administration and avoid the emergence of new
arrears in public administration payments to providers. 
·        
Financial sector: Spain has
successfully concluded a euro-area-backed programme to recapitalise its
financial institutions. However, the sector still faces challenges and risks
that need to be carefully monitored and managed, and it is important to ensure that
credit keeps flowing to viable sectors of the economy as the deleveraging of
the corporate sector continues, in particular by completing the recent and
ongoing measures to widen access to finance for small and medium-sized
enterprises. New legislation was adopted in March 2014
to facilitate corporate debt restructuring of viable firms. Nevertheless, there
seems to be still scope to reinforce the efficiency of the insolvency framework
for both corporate and individuals.
·        
Labour market, education and training, and
social policies: Although slowly declining,
unemployment is unbearably high. Moreover, the labour market remains fragmented,
with a high share of temporary employment carrying risks for productivity and
human capital development. As a result of the deterioration of the labour
market and the strain on the capacity of social protection from growing demand,
poverty, social exclusion and income inequality are on the rise. Early school
leaving is falling, but the use of vocational training is still insufficient
and the mismatch between education and labour market needs is a problem. Effective
active labour market policies and labour market institutions, as well as
flanking reforms in education, training and youth policies are key to reabsorb over
time the very high number of unemployed. At the same time, it is also crucial to
continue monitoring closely the effects of recent reforms and maintaining wage
setting consistent with job creation and international competitiveness. More
employment-friendly taxation and greater competition in product and services
markets are also necessary to boost employment. 
·        
Product and service markets: Competition in the domestic goods and
services sectors would be further improved with the full implementation of
ongoing reforms, such as the December law to secure
market unity and adoption of the law on professional services, which has been further
delayed. The parliamentary approval process for the dis-indexation law is
ongoing, and some of its principles have already been implemented with the 2014
budget law. Efforts have been made to foster a more efficient rental housing
market and steps have been taken to address the electricity tariff deficit, in
particular by reducing the system costs, with the aim of eliminating the
deficit as of 2014. 

1.        
Introduction  

In May 2013, the
Commission proposed a set of country-specific recommendations (CSRs) for
economic and structural reform policies for Spain. On the basis of these
recommendations, the Council of the European Union adopted nine CSRs in July
2013. These CSRs concerned public finances, taxation, labour market, education
and training, social policies, business environment, product and services
markets, network industries, public administration and the judicial system.
This staff working document (SWD) assesses the state of implementation of these
recommendations in Spain.
The SWD assesses policy
measures in light of the findings of the Commissionʼs Annual Growth Survey
2014 (AGS)[1]
and the third annual Alert Mechanism Report (AMR),[2] which
were published in November 2013. The AGS sets out the Commissionʼs
proposals for building the necessary common understanding about the priorities
for action at national and EU level in 2014. It identifies five priorities to
guide Member States to renewed growth: pursuing differentiated, growth-friendly
fiscal consolidation; restoring normal lending to the economy; promoting growth
and competitiveness for today and tomorrow; tackling unemployment and the
social consequences of the crisis; and modernising public administration. The
AMR serves as an initial screening device to determine whether macroeconomic
imbalances exist or risk emerging in Member States. The AMR found positive
signs that macroeconomic imbalances in Europe are being corrected. To ensure
that a complete and durable rebalancing is achieved, Spain and 15 other Member States were selected for a review of developments in the accumulation and unwinding
of imbalances. These in-depth reviews were published on 5 March 2014 along with
a Commission Communication.[3]
Against the background
of the 2013 Council Recommendations, the AGS, the AMR and the in-depth review, Spain presented its national reform programme and a stability programme on 30 April 2014.
These programmes provide detailed information on progress made since July 2013
and on the plans of the government. The information contained in these
programmes provides the basis for the assessment made in this staff working
document.
The programmes
submitted underwent a consultation process involving regional authorities and
relevant stakeholders, such as social partners and representatives of the third
sector, in the areas of their competence.

2.        
Economic situation
and outlook 

Economic situation
The correction
of macroeconomic imbalances has progressed, allowing a return to positive
economic growth and a stabilisation in the labour market. A
number of policy measures were taken to strengthen the financial sector,
restore competitiveness and shore up public finances. The private sector is gradually
reducing its debt, and the current account balance has turned into a small surplus.
Amid recovering confidence and reduced economic uncertainty, the economy has pulled
out of a long recession and employment rates have stopped their decline in the
fourth quarter of 2013 (in quarterly terms). A return to positive GDP growth took
place as domestic demand became less of a drag on growth amid recovering
confidence and gradually easing financing conditions, in particular for larger
borrowers. However, large deleveraging needs in the private and public sectors cap
medium-term growth prospects and mean that the economy remains vulnerable to
shocks. The recovery can be sustained only if it does not result in a halt or
reversal of the adjustment process, as the ongoing correction of imbalances
still has a long way to go.
Economic outlook
According
to the Commission 2014 spring forecast, GDP is expected to grow by 1.1% in
2014. The
narrowing contribution from the external sector will be more than offset by the
positive contribution from domestic demand, which is expected to gain momentum
in the coming quarters. Private-sector investment in equipment is expected to
benefit from the improved economic outlook and the relative strength of
exports. Conversely, the adjustment of residential investment is set to reach
its inflection point only in 2015. The unemployment rate is forecast to fall moderately
to 25.5 %,[4] due
to both the decline in the labour force and meagre employment growth. Although
productivity growth is expected to slow, wage moderation should allow for
further improvements in nominal unit labour costs and competitiveness gains.
The
macroeconomic scenario underlying the national reform programme and the stability
programme appears somewhat optimistic for 2015 and the outer years. For
2014, the GDP growth forecast of 1.2 % is similar to the outlook in the
Commission 2014 spring forecast, albeit with a more even growth composition,
with contributions of 0.7 pp. of domestic demand and 0.6 pp of net external
demand (0.4 and 0.8 respectively in the Commission 2014 spring forecast). For
the following years, the authorities forecast economic growth of 1.8 % in 2015,
2.3 % in 2016 and 3.0 % in 2017, compared to growth of 2.1% in 2015 in the
Commission 2014 spring forecast. However, the Commission forecast is carried
out under the customary no-policy change assumption, which does not factor in
the consolidation plans underlying the official macroeconomic scenario.
Specifically, the general government deficit projected for 2015 in the stability
programme is 4.2% of GDP, against a deficit of 6.1 % of GDP forecast by the
Commission. Had the Commission incorporated the fiscal adjustment to reach the
4.2% of GDP deficit, the resulting GDP growth forecast in 2015 would have most
likely been below 1.5 %. Moreover, the GDP growth rates for 2016 and 2017 in
the stability programme seem optimistic when seen against current estimates of
the potential growth rate of the economy and the remaining economic adjustment
needs.

3.        
Challenges and assessment of policy agenda 
3.1.                
Fiscal policy and taxation 

Budgetary developments and debt
dynamics 
The
main goal of the medium-term budgetary strategy outlined in the stability
programme is to correct the excessive deficit by 2016 and reach
the medium-term objective (MTO) in 2017.[5] The
stability programme confirms the medium-term objective (MTO) of a
balanced budgetary position in structural terms, which is more stringent than
what the Stability and Growth Pact requires. The stability
programme broadly confirms the fiscal structural reform agenda included in the economic
partnership programme presented in October 2013. 
Fiscal
consolidation continued in 2013, although at a slower pace than in 2012. The
general government deficit net of capital transfers to banks (3.8 % of GDP in
2012 and        0.5 % of GDP in 2013), carried out in the framework of the
financial sector programme and considered as one-off operations, narrowed to
6.6 % of GDP in 2013, from 6.8 % of GDP in 2012. This marginally exceeds the
government and EDP target of 6.5 % of GDP.[6]
By level of government, the main consolidation effort was achieved at the regional
and local level, although the regions as a whole missed the deficit target of
1.3 % of GDP by slightly more than 0.2 pp., while the local governments
over-performed their zero balance target, posting a surplus of 0.4 % of GDP. In
contrast, the social security sector balance deteriorated by around 0.2 pp.,
resulting in a deficit of almost 1.2 % of GDP, which, however, was more than
0.2 pp. better than target. The deviation from the general government target
set in the 2014 Draft Budgetary Plan was largely linked to weaker-than-expected
current revenues, mainly as a result of lower-than-targeted taxes on income and
wealth. On the expenditure side, slippages regarding social transfers in
kind, other current expenditure and gross fixed capital formation were more
than compensated by lower-than-expected social transfers other than in kind,
subsidies and other capital expenditure.
For
2014, the stability programme aims at accelerating the general government
deficit reduction to 5.5 % of GDP, over-performing the headline target of 5.8 %
set in the 2014 budget and in the June 2013 EDP recommendation. The
new more ambitious target largely reflects the positive budgetary impact from a
significant upward adjustment of the macroeconomic scenario and labour market
developments, which more than offset the slightly worse starting position in
2013. The planned narrowing of the deficit in 2014 would be achieved by a
combination of higher revenues and expenditure restraint. The revenue-to- GDP
ratio is forecast to increase by 0.8 pp., reflecting more buoyant revenues from
both direct and indirect taxes due to the expected higher GDP growth and more
tax-rich growth composition as well as to some additional consolidation
measures adopted in response to the Commission Opinion on the 2014 Draft
Budgetary Plan. The expenditure ratio is projected to fall by 0.4 pp.
(excluding bank recapitalisation costs in 2013), reflecting mainly lower
spending on compensation of employees, intermediate consumption and
unemployment benefits, while the increase in nominal interest expenditure is
decelerating thanks to improved market financing conditions. In total, the
consolidation in the programme relies on adopted discretionary measures with a
budgetary impact estimated by the government at 1.6 % of GDP. In its 2014
spring forecast, the Commission projects a marginally higher deficit of 5.6 %
of GDP. 
In
the stability programme the authorities confirm their commitment to advance
with fiscal consolidation over the medium term. The authorities
target a headline deficit of 4.2 % of GDP in 2015, 2.8 % of GDP in 2016, and
1.1 % in 2017. The fiscal consolidation plan projects an increasing fiscal
effort towards the end of the programme period, back-loading the fiscal
adjustment. The current programme targets differ only marginally from those in
the previous programme and are set in line with the budgetary plans presented
in October 2013. According to the programme, the consolidation would be
primarily achieved via expenditure restraint. The expenditure-to-GDP ratio (net
of bank recapitalisation costs in 2013) is projected to fall by 4.2 pp. between
2013 and 2017 while the revenue-to-GDP ratio is expected to increase by 1.3 pp.
The planned expenditure savings mainly falls in the areas of compensation of
employees and social transfers and less in intermediate consumption and other
current expenditure. On the revenue side, higher revenue from both direct and
indirect taxes, including due to measures in environmental taxation, is
expected to more than offset a fall in social security contributions. The
central government would reduce its deficit by 3.7 pp. between 2013 and 2017,
the regional governments by 1.5 pp., and social security by 1.2 pp. The local
government budgets are planned to be in balance from 2014 onwards.
Concrete
measures to support the headline deficit targets from 2015 onwards are not yet
sufficiently specified, especially regarding the changes to tax legislation
within the framework of the planned tax reform (see
Box 1). For 2015, the stability programme foresees the headline deficit to
narrow by 1.3 pp., with decreasing expenditure contributing 1 pp. and a further
0.3 pp. stemming from higher revenues, primarily higher indirect taxes. The
projection is based on consolidation measures with an incremental budgetary
impact of only 0.97 % of GDP, of which 0.82 % on the expenditure side and 0.15
% on the revenue side. The programme does not clearly specify to what extent
these measures have already been adopted or are to be adopted. However, the fact
that the programme foresees a net consolidation effect of revenue measures of
0.15 % of GDP seems to indicate that those temporary revenue measures taken in
previous years that were due to expire by the end of 2014 will either be
extended, made permanent or replaced by other measures, including (still to be
specified) revenue measures at regional level. According to the programme, a
gradual reform of the tax system from 2015 onwards will be adopted based on the
report of the committee of experts already presented in March, although
concrete details on the planned measures and their estimated budgetary impact
are not provided. On the expenditure side, the main discretionary measures with
an incremental impact in 2015 are the continued freeze in public sector hiring,
unspecified savings at regional level and savings under the public and local
administration reform. The main consolidation efforts for 2016 presented in the
programme concern planned savings at regional level and further savings from
the public and local administration reform. For 2017 the programme does not
specify any measures to underpin the envisaged further reduction in the
deficit. 
Risks
to the deficit adjustment path presented in the stability programme are tilted
to the downside. In particular, while the macroeconomic scenario
underpinning the budgetary projections in the programme is broadly plausible
for 2014, the budgetary targets for 2015 and beyond rely significantly on the
underlying scenario of accelerating GDP growth. There is uncertainty regarding
the revenue projections from 2015 onwards, as the source of additional regional
revenues and the changes to the tax legislation in the framework of the planned
tax reform are not sufficiently specified. The yield of planned savings from the
local government reform and at the regional level is still uncertain and subject
to significant implementation risks, which could be further heightened by the
upcoming elections in 2015. Moreover, maintaining the public sector pay and
hiring freeze may prove increasingly difficult the longer it has been in place.
Other risks to the budgetary strategy are larger deficits in the social
security system if employment growth falls short of expectations. Finally,
contingent liabilities linked with asset protection schemes (guarantees) for
financial institutions, the electricity tariff deficit and the financial health
of toll road companies are significant.
Although
  Spain plans to meet the headline EDP targets recommended by the Council in
June 2013, the planned fiscal efforts falls short of the Council's
recommendations. After marginally missing the headline
deficit target in 2013 (excluding the costs for bank recapitalisations within
the framework of the financial sector programme) the headline deficit target for
2014 (5.5 % of GDP) is more ambitious than the EDP target of 5.8 % of GDP while
for 2015 and 2016 the programme targets are set in line with the EDP targets of
4.2 % and 2.8 % of GDP, respectively. However, in terms of the structural
balance, the programme foresees an improvement in the (recalculated) structural
deficit of 0.7 % of GDP in 2014, 0.2 % of GDP in 2015, 0.5 % of GDP in 2016 and
0.7 % of GDP in 2017. For 2014, the programme assumes deficit increasing
one-off measures of 0.2 % of GDP related to the introduction of a temporary
flat social security rate on new permanent employment contracts and to the
European Court of Justice decision on illegally levied special taxes, 'centimo
sanitario',
whereas in the Commission 2014 spring forecast only the latter measure is
considered as a one-off measure to be excluded from the structural balance.
Overall, the annual improvement in the structural balance falls below the
structural effort recommended by the Council (see Box 2). For 2017, after the
planned correction of the excessive deficit, the programme foresees adequate
progress in structural terms, by 0.7 pp., towards achieving the MTO, which
based on the (recalculated) structural balance, would not be reached within the
programme period.
In
the Commission 2014 spring forecast, the general government deficit is forecast
to decrease to 5.6 % of GDP in 2014, over-achieving the EDP target, and to
rebound again to 6.1 % of GDP in 2015 (based a no-policy change assumption),
above the EDP target. While the improvement in the structural
balance for 2013 is 0.2 pp. above the effort in the EDP recommendation, the
cumulative change in the structural balance over 2013 and 2014 falls somewhat
(0.2 pp.) short of the EDP recommended value. When corrected for
revisions in potential output growth and for unexpected revenue
windfalls/shortfalls, the cumulative change in the structural balance for
2013-14 falls short by 1.1 pp. of the recommended adjustment (although this
figure is inflated by recent changes in the methodology for the estimation of
potential output).[7]
Over the same period, the fiscal efforts calculated according to the bottom-up
methodology, which estimates the size of the additional effort on the basis of
the discretionary revenue measures and the expenditure developments under the
control of the government between the baseline scenario underpinning the EDP
recommendation and the Commission's 2014 spring forecast, fall short by 0.4 pp.
compared to the amount of measures estimated as necessary at the time of the
EDP recommendation. For 2015, the structural deficit is projected to
deteriorate by 1.1 pp. to 3.4 % of GDP based on a no-policy change assumption,
in contrast to the programme which projects the structural deficit to improve
by 0.2 pp. The no-policy-change assumption in the Commission's forecast implies
among others that a sizeable amount of revenue measures of about 1.2 % of GDP,
which were announced as temporary before the cut-off date of the forecast, are
projected to expire in 2015, which significantly contributes to the
deterioration in the deficit.[8]
The
general government debt-to-GDP ratio has been on a steep upward path since
reaching a low of about 36 % of GDP in 2007. In 2013, it
rose further to almost 94 % of GDP. The debt ratio is projected to continue to
increase over the programme period, peaking at close to 102 % in 2015, well
above the Treaty reference value in all years. This increase in debt is mainly
driven by high interest payments and to a lesser extent by the dynamics in the
primary deficit, which is expected to turn into a surplus in 2016. According to
the programme, the stock-flow adjustment contributes 1.7 pp. in 2014 and one
additional percentage point accumulated over 2015-17. The trend in the debt
ratio may be more unfavourable than projected in the programme if risks related
to the budgetary targets materialise. 
The
stability programme foresees most of the consolidation over the 2013-17 period
to take place on the expenditure side. While this is
consistent with keeping tax pressure low, it also calls for reviewing
systematically expenditure at all government levels to identify areas where
savings could be made and to ensure that these are generated in a growth-friendly
way while catering for the needs of the most vulnerable. Key categories of
spending have been reviewed recently on occasion of the health, education and
public administration reforms, the implementation of which is ongoing. Looking
forward, reviews could be extended to areas such as spending on active labour market
policies, for instance to re-assess the efficiency and efficacy of current
hiring subsidies (see section 3.3). Additional reviews on public administration
spending could also take place, especially at sub-central government level.
 Box 1. Main measures 
 After relying on a number of tax increases in 2012-14, such as personal and corporate income taxes, VAT and environmental taxes, the measures presented in the programme are more clearly tilted towards the expenditure side in the latter years of the programme. Notably, the programme relies on a continuation of the hiring freeze, deceleration of social transfers as a result of the pension indexation reform, and continued expenditure restraint at regional and local government level. The reform of local government and other savings at local level are expected to yield increasing savings, reaching 0.6% of GDP over 2015-2016. The table only includes measures that have been specified in sufficient detail. In addition, for the years 2015-2016, the programme also refers to a number of other unspecified measures, in particular on the revenue side. 
 Main budgetary measures 
 Revenue || Expenditure 
 2013 
 ·      Income tax and taxes on non-residents (0.2 % of GDP) ·      Excise taxes and environmental taxes (0.3 % of GDP) ·      VAT (0.8 % of GDP) ·      Revenue measures at regional level (0.2 % of GDP) ·      Social contributions (0.2 % of GDP) || ·      Christmas bonus reintroduction (-0.5 % of GDP) ·      Public employment (0.3 % of GDP) ·      Labour market policies (0.3 % of GDP) ·      Long-term care (0.1 % of GDP) ·      Regional measures, excl. public employment measures (0.7 % of GDP) ·      Local government reform and adjustment plans (0.1 % of GDP) ·      Other, incl. CORA (0.4 % of GDP) 
 2014 
 ·      Corporate income tax (0.2 % of GDP) ·      Measures combatting fraud (0.1 % of GDP) ·      Revenue measures at regional level (0.3 % of GDP) ·      Environmental taxes (0.1% of GDP) ·      Social security (0.1% of GDP) ·      Local government measures (0.1% of GDP) || ·      Public employment (0.2 % of GDP) ·      Labour market policies (0.1% of GDP) ·      Regional measures, excl. public employment measures (0.1 % of GDP) ·      Local government reform and adjustment plans (0.1 % of GDP) ·      Social security (0.1 % of GDP) 
 2015 
   || ·      Public employment (0.1 % of GDP) ·      Local government reform and adjustment plans (0.4 % of GDP) ·      Social security (0.1 % of GDP) 
 2016 
   || ·      Public employment (0.1 % of GDP) ·      Local government reform and adjustment plans (0.3 % of GDP) ·      Social security (0.1 % of GDP) 
 Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national authorities. A plus sign implies that revenue increases or expenditure decreases as a consequence of this measure. 
 Macro-structural measures presented in the programme include, among others, measures on labour markets, insolvency procedures, regulation of electricity prices, local governments and to increase competition in railway and air transport (see Section 3.3). The aim of the measures is to improve the working of the labour market in order to reduce the high level of unemployment, sustain the deleveraging in the private sector, and boost competition. 
Box
 2. Excessive deficit procedure for Spain
Spain is currently
subject to the corrective arm of the Stability and Growth Pact. The Council
opened the excessive deficit procedure for Spain on 27 April 2009, in
accordance with Article 104(6) TEC. On 21 June 2013, the Council issued its
most recent recommendation to correct the excessive deficit by 2016 in
accordance with Article 126(7) TFEU and Article 3 of Council Regulation (EC) No
1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the
excessive deficit procedure. 
To this end, the Council
recommended that Spain should reach a headline deficit target of 6.5% of GDP in
2013, 5.8% of GDP in 2014, 4.2% of GDP in 2015, and 2.8% of GDP in 2016, which
is consistent with an improvement of the structural balance of 1.1%, 0.8%,
0.8%, and 1.2% of GDP in the years 2013-2016 respectively, based on the
Commission's 2013 spring forecast extended to 2016. Spain was also recommended
to (a) implement the measures adopted in the 2013 budget plans at all levels of
government and stand ready to take corrective action in case of deviations from
budgetary plans; (b) reinforce the medium-term budgetary strategy with
well-specified structural measures for the years 2014-16 that are necessary to
achieve the correction of the excessive deficit by 2016; (c) strengthen the
effectiveness of the institutional framework by raising further the
transparency in implementation of the budgetary stability law as well as by
establishing an independent fiscal council to provide analysis, advice and
monitor compliance of fiscal policy with national and EU fiscal rules; (d)
undertake concrete steps to rein in the increasing structural deficit in the
social security system, and (e) give a greater emphasis to the growth friendliness
of the consolidation, including by conducting systematic reviews of expenditure
and the tax system. In addition, to ensure the success of the fiscal
consolidation strategy, the Council highlighted the importance of backing the
fiscal consolidation by comprehensive structural reforms, in line with the
Council recommendations addressed to Spain in the context of the European
Semester and the Macroeconomic Imbalances Procedure.
On 15 November 2013, the
Commission concluded that, based on its 2013 Autumn Forecast, for 2013 Spain
had taken effective action in compliance with the revised Council
recommendation of 21 June 2013, provided that risks to the budgetary targets
were dispelled. As regards 2014, the assessment pointed to risks of
non-compliance. For 2015 and 2016, the budgetary adjustment still fell far
short of the recommendation. 
The year following the correction
of the excessive deficit, Spain will be subject to the preventive arm of the
Pact and should ensure sufficient progress towards its MTO. As the debt ratio
in 2016 is projected in the programme at 101.5% of GDP, exceeding the 60% of
GDP reference value, during the three years following the correction of the
excessive deficit Spain will also be subject to the transitional arrangements
as regards compliance with the debt criterion, during which it should ensure
sufficient progress towards compliance. 
An overview of the current state
of excessive deficit procedures is available on: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/spain_en.htm.
Fiscal framework
In 2013, the
transparency of budget execution improved considerably. This followed the publication of more systematic and
higher-frequency regional and local government budgetary data, both in terms of
cash and national accounts.[9]
In addition, the Ministry of Finance issued detailed and comprehensive evaluation
reports of regionsʼ economic and financial plans. It has also requested regions at risk of non-compliance with the 2013 target to
adopt corrective measures, and the content of these measures was disclosed for
the first time. Specifically, in
November 2013, Andalusia, Catalonia, Valencia and Murcia were required to take additional
measures in order to reach their 2013 fiscal target.
However, the full range of the enforcement mechanisms set out in Spainʼs budget
stability organic law for non-compliant regions has not been fully utilised so
far. Regional governments failed to meet the 2013
fiscal deficit target of 1.3% of regional GDP by a relatively small margin, but
the overall budgetary outcome masks differences among them. 
Spainʼs
independent fiscal institution (Autoridad independiente de responsabilidad fiscal
or AIREF) was created in law in November 2013, its president appointed in
February 2014 and its statutes published on 30
March 2014. AIREF has an initial budget of around EUR
4 million for 2014. While the launch of the independent fiscal institution is
welcome, it is coming after the 31 October 2013 deadline set out in EU law to
have such monitoring institutions in place and too late for AIREF to be able to
assess the 2014 stability programme. In line with the law, the AIREF will have
to issue reports and opinions, including endorsing macroeconomic forecasts, and
produce studies (resources permitting) upon the request of specific administrative
bodies. The independence of the AIREF and its president is protected by several
articles of the law, although this could have been further underpinned with
regard to its administrative location (currently attached to the Ministry of
Finance, instead of, for example, the Spanish Parliament or the Ministry of the
Presidency as suggested by the Spanish Council of State).[10]
Measures have been taken to reduce public-sector
commercial arrears.[11]
Information available shows that Spainʼs public sector has relatively high
payment duration (155 days in 2013, well above the EU average of 65 days, with
only limited progress over time).[12]
In particular, Organic Law 9/2013 on the control of the public sector's
commercial debt aims to enforce an average payment period to commercial
suppliers of 30 days across all general government levels. This is to be done by periodically publishing payment
periods for each administrative body (this obligation had been followed up partially
at the cut-off date of this report, as the implementing legislation had not
been issued) and by strengthening the powers of the Ministry of Finance to
enforce correction mechanisms and impose penalties on non-compliant
administrations. These provisions follow the repayment of large public sector
arrears deriving from regions and local entitiesʼ commercial debt: EUR 41.8
billion have been paid since 2012 through the three stages of the Suppliersʼ
Payment Scheme. The new provisions can create incentives at all government
levels to speed up payments to commercial suppliers. However, reducing the
payment period of Spain's administrative bodies to an average of 30 days is a
challenge, in particular, at sub-central government level.  
Long-term sustainability
Amongst the 2013 country-specific
recommendations for Spain were the need to improve the long-term sustainability
of the pension system and to increase the cost-effectiveness of
the health-care sector, while maintaining accessibility for vulnerable groups. The
analysis in this SWD leads to the conclusion that Spain has made substantial progress
on some aspects, and some progress on others (for the full CSR assessment see
the overview table in Section 4).
Spain
appears to face high fiscal sustainability risks in the medium-term, primarily
related to high level of government debt. Government debt
(93.9 % of GDP in 2013 and projected to rise to 103.8 % in 2015 in the
Commission's spring 2014 forecast under a no-policy change assumption) is
currently well above the 60 % of GDP Treaty threshold. While the debt ratio is projected
to fall by 2030, it would remain above 60 %. However, the full implementation
of the plans in the stability programme would put debt on a decreasing path and
it would fall below the 60 % of GDP reference value by 2030. The medium-term
sustainability gap, showing the adjustment effort up to 2020 required in the
structural primary balance to bring debt ratios to 60 % of GDP in 2030, is
at 2.6 % of GDP, relative to the 2015 primary balance in the Commission
2014 spring forecast. In the long-term, Spain appears to face low fiscal
sustainability risks: the long-term sustainability gap, showing the adjustment
effort in the structural primary balance needed to ensure that the debt-to-GDP
ratio is not on an ever-increasing path, is at 0.3 % of GDP. As a result
of the recent pension reforms, the costs of ageing[13] (as a
ratio to GDP) are projected to decrease by 1 pp. of GDP over the very long run,
almost offsetting the impact of the initial budgetary position on the long-term
sustainability. However, the contribution from health care expenditure is
relatively large (the projected increase in expenditure is 1.2 pp). There is
also a risk that the structural primary balance reverts to lower values
observed in the past (e.g. the average for the period 2004-2013). It is
therefore appropriate for Spain to reduce government debt and further contain
age-related expenditure growth to contribute to the sustainability of public
finances in the long term.
An important
reform of the pension system was approved on 23 December 2013. Law
23/2013 revising pension indexation and regulating the pension sustainability
factor complements the 2011 pension reforms and the measures to reduce access
to early and partial retirement that were adopted in March 2013. The law
changes the annual indexation of pensions as of 2014, by linking it to the
financial balance of the system, with minimum (0.25 % in nominal terms) and
maximum (0.5 % in real terms) thresholds. At the end of December, based on the
new law, the government adopted a nominal indexation of pensions by 0.25 % for
2014. From 2019, the law also introduces the automatic adjustment of future
retirees’ new pensions to take account of changes in life expectancy. The
reform will help to contain long-term pressure on pension expenditure.
According to the latest projections, public pension expenditure in Spain will decline from
10 % of GDP in 2010 to 9.6 % in 2060, compared with a projected 13.7 % of
GDP in 2060 before the reform. However, the sustainability factor formula does
not link the statutory retirement age to life expectancy, heightening the
challenge of pension adequacy for lower pensions.[14] High levels
of inactivity, lengthy unemployment periods and gender disparities in
employment and contributory periods may have a negative impact on future
benefits. Minimum contribution periods for pensions were adjusted for part-time
workers (who are mainly women), following a ruling of the European Court of
Justice.
A
comprehensive regulatory framework has been developed since 2012 to increase
the efficiency and control of health-care expenditure. This
includes: reviewing the services covered; introducing co-payments for some
services; changing the reference pricing for pharmaceuticals; building a
centralised purchasing platform for buying medicines, medical devices or
services; developing digital clinical records and electronic prescriptions; and,
preparing for the introduction of clinical management where physicians have
more responsibility for their budgets in health establishments. A system of
pharmaceutical expenditure control in hospitals has also been designed. The
measures that have already been implemented have helped to reduce expenditure
and to increase cost-effectiveness. While full implementation of the measures
adopted continues, the impact of recent reforms will need to be monitored and
evaluated to prevent unwarranted effects. As the system moved from a universal
health system to a coverage approach, the number of complaints about restrictions
on access grew. In addition, an increase in waiting lists has been noted, despite
initiatives to guarantee accessibility for vulnerable groups. Measures to
improve coordination of health and social services are also being developed to
make the healthcare model more efficient in the long-term. 
The
long-term care system has faced significant challenges. The
reduction in central budget contributions to financing the long-term
care system has halted the gradual roll-out of the system and reduced the
numbers of current and future beneficiaries. Spain is among the Member States
with the highest proportion of informal carers, and care needs are likely to
increase further due to the ageing population. As institutional care is
considerably more expensive than home care, it seems sensible to find
strategies to formalise support for informal carers, including by improving the
quality of home- and community-based services.
Tax system
In 2013, Spain was recommended to review
and reform its tax system in order to raise revenue in a way that is
growth-friendly, contributes to employment and improves tax compliance. Overall,
the analysis in this SWD leads to the conclusion that Spain has made some progress to design the measures to be taken addressing this
recommendation (for the full CSR assessment see the overview table in Section
4). The crisis revealed significant shortcomings in the Spanish tax
system, adversely affecting economic efficiency and fiscal performance. The
bursting of the construction and housing bubble and the ensuing recession led
to a significant erosion of tax bases in Spain. In 2012, the tax-to-GDP ratio
in Spain reached 32.5 %, much below the EU-28 average of 39.4 %, and below
the national average over the last decade (33.9 %). Thanks to a number of
discretionary tax increases and a stabilisation of output, the ratio bottomed
out in 2013. 
In response to last year's country-specific
recommendation to undertake a systematic review of the tax
system by March 2014, the government
appointed an expert committee last July. On 13 March, it delivered its report (see
Box 3), which focuses on simplifying the tax system and increasing its
efficiency, inter alia, by lowering the relatively high statutory tax
rates while broadening the tax bases, and suggests a revenue-neutral tax shift
away from direct taxes towards indirect taxes. However, the committee's report
lacks detail on the quantitative impact of specific measures and their effect
on income distribution, making their relative importance difficult to assess. Following
this report, the NRP undertakes the commitment to present a tax system reform
by the second quarter of 2014. Its main objectives will be: modernizing the tax
system, addressing its disincentives to employment – reducing the tax wedge -
and the low tax revenues, fostering economic development, guaranteeing market
unity and tax neutrality and improving competitiveness.
Box 3.
Report from the committee of experts on the reform of the Spanish tax system 
The general direction of the
proposals is to broaden tax bases to allow for a lowering of nominal and
marginal tax rates and to move the burden of taxation away from direct taxation
towards indirect taxation. The committee, led by Prof. Manuel
Lagares, preferred not to enter into a discussion on the optimal level of
taxation and thus worked under the assumption of constant overall tax revenues
in percent of GDP in the coming years. The experts also recommend actions to
combat tax fraud and preserve market unity. These principles have guided the
committee to make the following main recommendations:
Personal income tax:
Maintain the dual system of a standard base and a savings base, but reduce
progressivity in the taxation of the former and reduce the number of tax
brackets. Tax the savings base at a single rate close to its current lowest
rate. Broaden the tax base by eliminating or reducing exemptions and deductions.

Corporate income tax:
Allow a gradual lowering of the nominal tax rate from 30% to 20% by eliminating
deductions, so that the effective and legal tax rates converge. Eliminate the
differentiation of tax rates according to firm size to improve incentives for
firms to grow. 
Value added tax: Raise
the super-reduced and reduced rates to the general rate of 21% in the long run,
but with the following exceptions and provisos: a) Only increase the
super-reduced rate if compensatory benefits to those with the lowest incomes
are introduced simultaneously; b) only consider bringing tourist services to
the general rate if combined with a substantial reduction in social security
contributions; c) do not raise the VAT rate for housing to the general rate for
the time being, as it would complicate the unwinding of the significant stock
of unsold houses in Spain; d) maintain the reduced rate for public transport
services, given their positive environmental effects. To reduce fraud,
eliminate the special retailers' regime and the simplified VAT regime.
Excise duties and environmental taxes:
Periodically revise excise duties on alcohol and tobacco to maintain their
weight on the consumer price and to gradually bring them in line with those in
the rest of Europe. In environmental taxation, tax separately the carbon
dioxide and energy content of products to ensure the neutrality of the tax
system between various energy sources. To this effect, bring the tax on diesel
fuel into line with that on petrol and change the rate and eliminate exemptions
from the coal tax. Replace the tax on the invoiced amount of electricity sales
with one based on kW/h consumed to encourage energy efficiency. Eliminate
certain allegedly environmental taxes at regional level that hamper market functioning
or simply do not achieve their purpose and replace them with national level
taxes.
Social contributions:
Eliminate non-discriminatory rebates in favour of more targeted rebates
directed at particularly underprivileged groups that cannot be reached by other
more efficient means. 
Combating tax fraud: Implement
the recommended reductions in tax rates to reduce incentives for fraud. Provide
sufficient resources to tax authorities to enable them to fight fraud, notably
through large-scale and coordinated processing of information.
Decentralised taxation:
Given the relatively high level of decentralisation of revenue in Spain, the report puts forward key principles to avoid that decentralisation hamper the
unity of the internal Spanish market and economic neutrality. To this end, a
mechanism of ex ante coordination for regional governments' taxation is
also proposed. 
There
remains scope to increase consumption taxes and improve their efficiency by
broadening the VAT base. In 2012, VAT rates were raised and the base
of the reduced rate was narrowed. However, in January 2014, it was
decided that imports and certain transactions regarding art, antiques and
collectibles should be moved from the standard to the reduced rate. Excise
taxes (levied at lump-sum rates) on alcohol and alcoholic drinks were increased,
as
of June 2013, by
approximately 10 %, although this does not apply to beer or wine. Tobacco
excise duties were also increased. Despite these increases, overall
progress appears limited. The NRP does not foresee further measures to broaden
the standard VAT rate base. Certain measures taken to foster entrepreneurial
activity (such as the VAT special cash accounting scheme) are announced to remain
in place. 
Revenues from environmental taxes,
expressed as a percentage of GDP, remained among the lowest in the EU in 2012,
with low revenues from energy and transport fuel taxes.
Following the package of taxes that entered into force on 1 January 2013,
further progress includes a new tax on fluorinated
greenhouse gases, applicable from 1 January 2014 and which according to the NRP
should yield 400 million euros in 2014. No progress,
however, seems to have been done on fuel taxes, expressly mentioned in the 2013
country-specific recommendations, and where there is scope to address the
preferential treatment of diesel compared with petrol. The expert committee’s
report contains a number of proposals in this area which aim to rationalise and
increase the weight of excise duties and environmental taxation. The NRP refers
to further studies to increase environmental taxation while minimising the
impact on competitiveness. The NRP also refers to certain progress made in this
area at regional level, since several regions have created new environmental
taxes or have increased the rates of existing environmental taxes.  
Limited progress has been made on
reducing high tax expenditure in direct taxation, as proposed in the 2013 CSR. There
is scope to downscale tax expenditures by assessing their effectiveness and
likelihood of achieving their goals. Despite the restriction in some
deductions – depreciation rates, value depreciation of shares and financial
goodwill, loss offsetting, recent trends show that new discretionary measures
were created or extended. Altogether, tax expenditures set out in the 2014
budget amounted to around 2 % of GDP. In this respect, the expert committee
also recommended eliminating exemptions and deductions, while lowering headline
tax rates.
In line with the 2013 CSRs, new measures
to address the debt bias in corporate taxation were introduced, but with likely
only indirect effects. The measures adopted in 2013 include
deductions for reinvested profits and for shares acquired in newly set up
companies. However, these measures may only indirectly limit the debt bias and
their effectiveness will have to be monitored over time, also as there are . It
is difficult at this stage to ascertain whether and to what extent the measures
adopted since 2012 might have contributed to the ongoing deleveraging in the
corporate sector 
Property taxation is still to a large
extent transaction-based. Although revenues from recurrent
property taxes increased in 2012 to 1.2 % of GDP, property transaction taxes
still account for a large proportion of property taxation. To ensure a more
stable tax base and in order not to hamper labour market mobility, property
taxation could be further shifted towards recurrent taxes, as the NRP proposes
to analyse further. 
A
shift from taxes on labour to mainly indirect taxes could play a role in
addressing Spain's unemployment challenges, although it is not a panacea as
other structural factors mostly explain the labour market outcome.[15] Spanish
labour tax rates are not high in comparison with other EU countries: the
implicit tax rate on labour (33.5 %) and the proportion of an individual total
wage paid as tax (37 %) are below the EU average. The announcement of the NRP
to increase the exemption of labour income earners with income below EUR 12.000
should contribute to reduce the tax wedge of the low-skilled. While employees'
social security contributions are relatively low, employers contributions are
relatively high (8.4 % of GDP in 2012, accounting for 25.8 % of total taxation
— the fourth highest value in the EU — and 70 % of the total contributions).
Focusing cuts on employer's social security contributions (in particular for
low-wage earners) may thus have a more immediate impact on employment than
reducing the personal income tax rate. In 2013, Spain introduced reductions in
social security contributions for hiring young people and in
February 2014, the government also introduced a temporary low flat-rate social
security contribution for new permanent contracts, in order to support
employment and improve incentives to leave the informal sector (see also
section 3.3 on the labour market). This measure increases incentives to hire
permanent staff during the period of validity (until the end of 2014). There is
a risk, however, that it may carry a non-negligible fiscal cost relative to its
impact on net employment creation.
In the
fight against fraud, Spain has made efforts to tackle aggressive tax planning
and organized crime, control electronic commerce and online gambling and extend
its network of international agreements to exchange information relevant for
tax assessments. The returns from auditing and control activities
and the improvement of the tax assessment yield about EUR 11 billion according
to the NRP. The new reporting obligations regarding assets held abroad affected
131 000 taxpayers, who reported assets valued at EUR 87 billion. In
2014 a special plan to combat grey economy has been launched, which will
provide for an increase of the staff's working hours to run e-audits. Spain also
launched a project with private companies to study potential improvements in
managing the benefits system. Still, the Spanish tax administration neither
estimates nor monitors the tax gap. As the ceiling for cash payments – EUR 2 500
– is higher than in other Member States with similar challenges, [16] there
seems to be scope to expand the use of electronic payments - a useful
measure to reduce the underground economy. The implementation of the 2012-2014
national plan against irregular work and social security fraud continued,
including strengthened monitoring and checks to combat sham companies,
irregular employment and social security fraud, and undue benefit collection.[17] The
intensification of social security checks resulted in a reported 30.6 %
increase in identified infringements by employers who employed recipients of
unemployment benefits or provided access to such benefits without cause, and a
28.9 % increase in identifying the illegal combination of unemployment benefit
receipt and work.[18]
As recommended by the experts' committee, Spain could also usefully consider –
among other measures – expanding the use of data matching to detect tax evasion
and fraud.[19]

Box 4: 
Conclusions from the March 2014 in-depth review on Spain
The third in-depth review (IDR) on Spain under the Macroeconomic Imbalances Procedure was published on 5 March 2014. [20] On
the basis of the IDR, the Commission has concluded that Spain is experiencing macroeconomic imbalances which require specific monitoring and
decisive policy action. In several aspects, the adjustment of the imbalances
identified last year as excessive has clearly progressed and the return to
positive growth has reduced risks. However, the magnitude and inter-related
nature of the imbalances, in particular high domestic and external debt levels,
mean that risks are still present. The main conclusions of the IDR, many
elements of which are taken up and further developed in this staff working
document, can be summarised as follows: 
- The adjustment has been supported
by decisive policy actions at the EU level and at national level. In
particular, the recapitalisation and restructuring of weaker banks has
dispelled systemic concerns about the financial sector and allowed a smooth conclusion
to the financial assistance programme at the beginning of 2014. The current account
has turned into surplus, as a result of import compression and strong exports,
supported by competiveness gains. The housing market has nearly stabilised. The
pace of job losses appears to be coming to an end. The comprehensive agenda of
structural reforms outlined in the 2013 national reform programme has been mostly
completed, and attention is shifting to a challenging implementation phase.
These positive developments have led to a strong return of confidence, shown by
the fall in market risk premiums, the return of foreign capital inflows and the
rise in business and consumer confidence. 
- However, the adjustment is far from
complete and vulnerabilities persist: the very high stock of private and public
debt, both domestic and external, continues to pose risks for growth and
financial stability; unemployment remains at alarming levels; maintaining the
re-orientation of the system of production towards exporting sectors and
recovery in international competitiveness is key to reducing the very large
stock of external liabilities; the adjustment of private-sector balance sheets
is advancing, although at a limited pace due to high unemployment and falling
incomes, while non-financial corporations have reduced debt at a somewhat more
sustained pace. 
The IDR also discusses the policy
challenges stemming from these imbalances and the possible ways to address these.
A notable challenge will be ensuring that deleveraging goes hand-in-hand with
positive credit flows to financially healthy borrowers, including by removing
hindrances to the functioning of the product and financial markets and
efficient insolvency procedures. Building on recent reforms to internal
flexibility and wage setting, additional reforms could be envisaged to the
labour market. Future reform of the tax system, still to be developed,
could help make the tax system more growth-friendly and make tax revenues less
volatile. Finally,
significant revenue shortfalls, higher social expenditure and the costs of bank
recapitalisation have led to substantial pressure on government deficits and a
steep rise in government debt. Sustained fiscal efforts will be required to
ensure a reduction in government debt in the medium term. 

3.2.                
Financial sector 

Spain has
successfully concluded the financial sector programme for the recapitalisation
of its financial institutions. The 2013 CSR on implementing the
financial sector programme in Spain has been fully addressed, and the
conditionality included in the Memorandum of Understanding has been met, as
confirmed by the final programme review in December 2013.[21] The
programme contributed to improving the solvency and liquidity position of
Spanish banks and to a strengthening of financial sector governance and
regulatory and supervisory procedures. In particular, European Banking Authority
core tier 1 ("capital principal") reached 11.5 % at the end of
2013. In addition, banks are shifting towards more stable funding sources like
retail deposits, and thus reducing their reliance on the Eurosystem and on
wholesale markets. 
However,
the financial sector still faces with significant challenges and risks that
need to be carefully monitored and managed. Despite recent
improvements, the broader economic environment has continued to weigh on the
banking sector. The profitability of the banking sector will be subject to
pressures stemming from asset quality developments and lower volumes of
intermediation. In particular, high unemployment and the ongoing housing market
adjustment have continued to put strains on asset quality. Non-performing loans
have been on an upward trend until December 2013, when they reached 13.6 %
of total loans, but have since then mildly declined to 13.4 % in March 2014.[22] The
coverage ratio of non-performing loans is comfortable. Credit contraction has
been the main channel of private-sector deleveraging, with bank lending on a
declining path since 2007. Recent data shows some deceleration in this
contraction and new credit to non-financial companies has started growing
again. 
Spain is
expected to ensure the full implementation of the policy measures initiated
under the Memorandum of Understanding and to make further progress in
stabilising the banking sector. These include, in particular,
completing the reform of the saving banks sector, implementing measures to
improve non-bank financial intermediation, completing banksʼ restructuring
plans and continued monitoring of Sarebʼs activity.[23] 
It is important
to ensure that credit continues to flow to viable sectors of the economy, as
the deleveraging of the corporate sector continues. In
spite of the improvements in the liquidity and financing of the financial
sector,
credit conditions for smaller borrowers are being eased only slowly and
remain relatively onerous (although the latest data, such as the Bank
Lending Survey for the first quarter of 2014 and the April 2014 ECB survey of
SME, show a more marked relaxation of lending conditions for SMEs).
Going forward, banks faced with a historically high level of non-performing
loans may have become structurally more prudent in their lending and SMEs may
be disproportionally affected by the ongoing bank restructuring, through
weakened or broken long-term lender/borrower relations. Specifically,
inadequate access to finance for fast-growing firms operating in innovative and
knowledge-intensive sectors may hamper the creation and development of
start-ups and technology-based SMEs, both critical for spurring long-term
growth. 
Spain has
taken policy actions to ease SMEs access to finance.
Access to non-bank finance is being improved, with the development of
alternative capital and debt markets and venture capital. The first tender for
allocating investment commitments in the venture and development capital funds
of ICO[24]
Fondo Global was awarded and three other tenders are planned for 2014. The
alternative bond market for SMEs (MARF)[25]
has become operational and the first issuance on this market took place in
December 2013, while several others are in the pipeline. The volume of the ICO's
on-lending programme for SMEs via commercial banks has increased significantly,
to EUR 13.8 billion in 2013, and its funding rates to banks continued to
decline, supported by funding deals with KfW and the European Investment Bank.
A broad-based legislative package, which is currently being finalised, aims to
facilitate access to finance for SMEs and other non-financial corporations by, inter
alia, improving (i) access to financial information (banks are required to
give prior notice and disclose their internal creditworthiness assessment of a company
before restricting or cancelling its access to financing); (ii) the CERSA (Compañía
española de reafianzamiento, S.A.) regime of mutual guarantees; (iii) the arrangements
for securitisation; and (iv) the two-way transit between the traditional and
the alternative stock markets. Further policy actions could be considered to improve
the efficiency of the existing instruments and the allocation of the available
resources, taking into account the possibilities offered by increased used of
the European structural and investment funds to set up revolving funds. Facilitating
companies' access to debt and equity markets and developing venture capital
instruments should broaden the set of financial instruments available to
Spanish companies in the long run.
The
corporate insolvency framework was reviewed in September 2013 and March 2014,
but it is too early to assess the impact of these revisions. Inefficiencies
in personal and corporate insolvency procedures may delay private-sector
deleveraging and the re-allocation of resources by impeding swift recognition
and work-out of unsustainable private debt or by unnecessarily pushing viable
firms into liquidation. Law 14/2013 on entrepreneurship has addressed some of
the apparent shortcomings of the insolvency framework for corporations, by
introducing a new debt refinancing procedure with the possibility of a partial
debt discharge. The law has also created a limited liability company ‘in
formationʼ with lower capital requirements and narrowed personal liability
of limited liability entrepreneurs. Increasing the efficiency of the
pre-insolvency regime was the main focus of Royal Decree-Law 4/2014 of 7 March
2014, which facilitates further negotiation of refinancing agreements to
accelerate the deleveraging process. It will be important to monitor the actual
take-up of these broader options to gauge their effectiveness, including
monitoring their effect on companies of different size. However, provisions
giving second chance to entrepreneurs have not yet been fully developed in Spain, as debt discharges are not automatically applied after a certain period of time.[26] Both
the pre-insolvency and insolvency proceedings available seem to offer
insufficient incentives to their use by SMEs, as they often exclude some
categories of creditors, or limit available options under restructuring plans.
Dealing with the
legacy debt of overly indebted individuals could be facilitated by developing a
permanent framework for personal insolvency, with due regard for the stability
of the financial sector. Some gradual reforms have been
introduced to reduce debt-related distress for residential mortgage debtors,
but their scope still seems to be insufficient. The current legal
framework does not generally allow for the possibility of debt discharge for
financially responsible personal debtors. In May 2013, the Spanish Parliament
adopted Law 1/2013 on strengthening protections for mortgage debtors, on debt
restructuring and on social housing. The law builds on legal acts adopted in
2012, and has tightened conditions for launching foreclosures.[27] These
emergency provisions tried to strike a balance between providing relief to
over-indebted insolvent households and preserving financial stability. However,
according to the available data, their take-up has been limited. A
careful evaluation of the effectiveness of these temporary measures (including
partial debt discharge) and measures to strengthen consumer protection (i.e.
cap on the penalty interest rate) could help defining a medium- and long-term
institutional and regulatory framework with due concern for balanced
creditor/borrower rights, the stability of the financial sector and overall
economic efficiency. 

3.3.                
Labour market[28], education and social policies 

Challenges regarding labour market,
education and training, social inclusion and poverty remain considerable,
notwithstanding the significant reforms, particularly in the labour market.
Almost 200 000 jobs were lost only
in 2013; overall, 3.6 million have been lost since the crisis began. Following
the incipient economic recovery and the unfolding effect of the reforms and measures
put in place, the labour market is showing signs of stabilisation since the end
of last year. The employment rate stopped its decline in the fourth quarter of 2013,
and employment is expected to grow in 2014. Unemployment has been decreasing,
initially due to a declining labour force, and is projected to continue falling
in 2014. Nevertheless, the legacy of long-standing institutional failures in
the labour market and of the financial crisis still weighs heavily on
employment and social indicators: the employment rate remains well below the
national target of 74 % by 2020, and unemployment remains high, particularly
for the young people, the low-skilled and migrants. A large proportion of the
unemployed has been jobless for more than a year, and is at risk of exclusion
from the labour force, particularly those who are over 50. Gender[29] and regional differences in employment persist,
further aggravated by a certain lack of adequate and affordable childcare
facilities and insufficient geographical mobility. In 2013, wage
moderation has come about as a result of the large slack in the labour
market, the 2012-2014 inter-confederal agreement, public-sector wage cuts and changes
in firms' internal flexibility. The rate of young people not in employment,
education or training has remained high in 2013, at 18.6% for people under 25
years, and further increased to 29.5% for those aged between 25 and 29. Early
leaving from education and training, although decreasing, remains very high.
Vocational education and training and apprenticeship schemes, although rapidly expanding,
are still insufficiently used.[30] Tertiary attainment rates remain constant.
Finally, in 2012, Spain saw a further increase in the proportion of the population
at risk of poverty or social exclusion, as well as the third largest fall in household
disposable income in the EU, while income dispersion continued to increase, to one
of the highest in the EU.
In 2013, Spain received country-specific recommendations concerning the labour market, education and
training and social inclusion. The analysis in this
SWD leads to the conclusion that Spain has made some progress on measures taken
to address the recommendations on labour market and education and training, and
on social inclusion. (For the full country-specific recommendations assessment,
see the overview table in Section 4). The significance
and urgency of the challenges in these fields makes it necessary to go further,
in particular by fostering job creation, reducing labour market segmentation, enhancing
the matching of education and training with labour market demands, reducing
early school leaving, increasing participation in vocational education and
training, tackling rising poverty and inequalities, and improving the coordination
of institutions and policies in these fields. 
Labour market
Recent
labour market improvements are likely to be partly the result of labour market
reforms. Evaluations
of the 2012 comprehensive labour market reform conclude that this reform and
the social partners' commitment to wage moderation from 2012 to 2014 have
helped limit job losses.[31] The
main mechanisms have been greater internal flexibility in companies, as the
reforms prioritise collective bargaining agreements at company level over
sectoral and regional level and increase possibilities for companies to opt out
of a collective agreement, as well as wage moderation. The reform has also reduced
the compensation costs for unfair dismissal and helped to lower the number of
dismissals challenged in court. Other aspects of the reform, like the
development of an individual right to training, are still under development.
High labour
market segmentation is still a key characteristic of the Spanish labour market.
Against
the background of an uncertain economic outlook, the proportion of
employees with fixed-term contracts in 2013 stood at 23.4 % (among the highest
in the EU), and 84.9 % of the temporary jobs had a duration of less than 3
months. This, coupled
with low levels of transition to stable jobs, raises concerns about, i.a., productivity,
deterioration of job quality and low levels of training on the job, especially
for young people and low-skilled workers.[32] The
duration of probation periods is typically shorter than in some other EU Member
States,[33] with
the exception of people hired under the open-ended contract in support of small
and medium enterprises introduced in 2012, which has a one-year probation
period. Use of this type of contract is increasing, although at a slow pace. The
simplification of contract templates, introduced in January 2014,[34] might
further increase transparency of information on hiring options for employers. Yet,
this administrative simplification is not accompanied by a streamlining of the
high number of current contractual arrangements (currently 42). The
gap in contract termination costs between permanent and temporary contracts remains
above EU and OECD averages, although it is narrowing following the changes
introduced by the 2012 reform and the gradual increases for fixed-term
contracts introduced in 2010.[35] 
A number of new measures have been adopted since the 2012 reform, without
introducing major amendments to labour market regulation. In August 2013, Royal Decree-Law
11/2013 further clarified the collective dismissal procedure, made some
modifications to the requirements for accessing unemployment benefits, and established
a framework for cooperation between public employment services and private
placement agencies. In December 2013, Royal Decree-Law 16/2013 introduced new
measures and extended hiring incentives to facilitate stable part-time
employment. The measure is driven by the relatively low number of part-time workers
in Spain (16 % of total employment in 2013 versus the EU average of 19.9 %). However,
a significant proportion of part-time employment in Spain is classed as
involuntary (60.9 % in Spain versus 27.6 % in the EU). The same Royal
Decree-Law introduced new rules concerning in-kind benefits for the calculation
of employers' contributions to social security, which, eventually, might increase
pension contribution bases but also have a small effect on labour costs. Another
relevant measure, likely to have an effect on self-employment growth rates, is the
extension of social security contributions rebates designed for young workers to
newly self-employed people, included in the law on entrepreneurship passed last
September. A new scheme for social security contributions was introduced at the
end of February 2014, according to which a lump-sum contribution of EUR 100 per
month is made for each new permanent contract signed before the end of 2014 and
leading to net permanent employment creation over two years (with special
provisions for companies of fewer than ten employees and part-time contracts). It
would be expected to mostly have an impact on the choice of contracts,
particularly for medium to high earners, as labour costs savings rise with
income levels when such a lump-sum contribution is applied. In addition, a further
streamlining of hiring subsidies under one piece of legislation has been also
announced by the government. Lastly, reducing the gender differences in
employment is one of the main objectives of the 2014-16 strategic
plan for equal opportunities adopted on 7 March 2014. Swift
implementation and close monitoring of the effectiveness and budgetary impact of
these new measures will be necessary. 
The geographical and skills mismatch between labour demand
and supply, aggravated by the ongoing transformation of the Spanish economy,
calls for the intensification of active labour market policies, the improvement
of public employment services and further extension of vocational education and
training.
In line with the 2013 country-specific recommendations, national annual
employment plans (Plan Anual de Politica de Empleo –
PAPE) were
adopted in August 2013 and the first semester of 2014. The employment plans
confirm the new results-based system to allocate funds to the Autonomous Regions
for the development of employment policies,[36] and are
likely to help improve coordination and information sharing among regional and
national public employment services. However, the division of responsibilities
regarding active labour market policies between the central government and the Autonomous
Regions means that the move to the new model is likely to be gradual and to
face implementation risks. The assessment against the 2013 performance
indicators, finalised in spring 2014, is expected to contribute to the further
fine-tuning of this framework, including strengthening the incentives (in 2015,
it is planned to distribute 60% of the funds to the Autonomous Regions
according to the results obtained), simplifying the system of indicators and
eliminating potential overlaps between national and regional public employment
services. The transition to an evaluation and outcome-oriented system will be
corroborated in the forthcoming 2014-16 activation strategy, likely to be
adopted by mid-2014. The new strategy will frame all the policy interventions
and measures regarding active labour market policies and public employment
services. Its strategic objectives are detailed in the 2014 national reform
programme: improving youth employability and implementation of the Youth
Guarantee, improving employability of older workers and long-term unemployed,
stepping up the quality of occupational training, reinforcing the links between
passive and active labour market policies and supporting entrepreneurship. The
government is working on the several legislative instruments that will be
required to implement the activation strategy, most notably a common catalogue
of employment services, which, inter alia, will detail the minimum services to
be provided by the public employment service. Also, measures to better link
active and passive labour market policies, including improving incentives to
work, are being developed. The national reform programme details also the
future reform of the continuous professional training model for workers, currently
under negotiation with the social partners, which will be developed based on the
principles of transparency and open competition, and will be subject to a
systematic evaluation of results.
The swift implementation of the 2013-16 youth employment
and entrepreneurship strategy, adopted in March 2013, should facilitate the
entry of young workers into the labour market. Pending the
first annual evaluation of the strategy, expected in summer 2014, preliminary
national data point to widespread use of short-term measures, such as
employment hiring incentives and social security rebates for hiring young
workers.[37] The
national Youth Guarantee Implementation Plan, submitted to the Commission in
December 2013, builds on the youth entrepreneurship and employment Strategy (see
  Box 5).
Box 5: The
delivery of a Youth Guarantee in Spain[38]
The most
important challenges to deliver a Youth Guarantee (YG) in Spain are: [39]
- Risk that not
all young people under the age of 25 years who are unemployed or who have left
formal education are considered as target population.
-
Non-availability of comprehensive ex-ante evaluation of the effectiveness and
adequacy of the proposed short-term trainings, hiring subsidies and social
security reductions to facilitate the sustainable labour market integration of
young people.
- Lack of
sufficient resources in the Public Employment Services, foreseen as the main
entry point for the YG initial assistance, to provide adequate personalised
guidance and individual action planning based on the profiles established
initially.
- Unclear
outreach mechanisms for non-registered unemployed or inactive youngsters.
- Need for
better targeting of the regional disparities and needs,[40]
continuous monitoring and effective coordination between the central
authorities and the autonomous regions that will be among the main responsible
for the implementation of the YG.
- Lack of
complementary national funding, which could undermine the implementation of the
Youth Guarantee in the short- and long-term.
Modernisation and strengthening measures for public
employment services seem to be lagging behind, which could hinder the
successful implementation of the new active labour market policies framework
and the Youth Guarantee. Work continues on a single job portal,
which is expected to bring together all national and regional public employment
services information for jobseekers and employers. Framework agreements for
cooperation between the public employment services and private placement
agencies were signed with 14 out of 17 regions[41] and a
total of 81 private agencies have been finally selected. Implementation is now
underway. However, no specific measures have been taken so far to
modernise and strengthen the capacity of the public employment services themselves,
allowing them to provide effective, individualised counselling and job search
assistance to
those looking for jobs. The 2014 national reform programme provides detail of the
deployment of an inter-regional best practice exchange programme on employment
services. The strengthening of public employment services is also key for the
modernisation of national European Jobs Network (EURES) services, which can
play a significant role in cross-border recruitment, matching and placement.
Education
and training
The 2013 organic law reforming education and
training (LOMCE), adopted last November, aims to improve the quality of the
Spanish education system and its links with the labour market. The
law aims to address three main challenges: (i) the high early school
leaving rate (which has wide regional differences); (ii) the insufficient use
of vocational education and training; and (iii) the need to improve educational
outcomes.[42] New provisions
are expected, if effectively implemented, to lead to tangible results on
lowering early school leaving. These provisions include compulsory
evaluation of studentsʼ performance after completing primary and secondary
education and the adaptation of curricula (aimed at improving performance
rates), increased
flexibility in the certification path, and a new two-year vocational training
module that upgrades the PCPI (Programa de cualificación profesional inicial
– Initial professional qualification programme), and allows students to
obtain initial professional qualifications paired with basic skills by providing
an alternative path to the compulsory education diploma. However, the absence
of any provision to continue the actions developed by the PROA (Programa de refuerzo,
orientación y apoyo – Support and guidance programme) programme to address
early leaving is a matter of concern. The LOMCE will enter into force gradually,
between the 2014/15 and 2016/17 academic years, although there are
implementation risks at regional level, mainly due to the lack of agreement
between the Autonomous regions and the State on its funding and implementation
of particular provisions.
Some progress
was made on implementing the dual vocational education and training system, but
links between education and labour market policies could be further improved. Over the
past year, Spain has further developed various modalities of dual vocational
education and training by strengthening work-based learning. Use of paid
internships and of training and apprenticeship contracts is progressing, but
requires further monitoring to evaluate its effectiveness as an adequate labour
market integration tool. All Autonomous Regions are implementing dual vocational
education and training in one of the proposed modalities, with more than 9 500
students, 375 learning centres and 1 500 companies involved. However, the
involvement of the business community is low: firms have little training
capacity, largely due to the lack of tutors, which leads to a limited availability
of traineeships, and the use of dual vocational education and training is
clearly geared to tertiary level (72 % of the total current programmes), and private
sector adherence is still low at basic level. In addition, the implementation
of different dual models across regions and the differences between the
Ministry of Education and the Ministry of Labour certifications can lead to compatibility
issues. To combat this, strengthening the national qualification system could
be a key tool to ensure coherence and comparability at national level. 
Tertiary educational attainment continues to be
relatively high, but the high unemployment and underemployment of university
graduates remains a concern. At 14 % in 2012, graduate
unemployment in Spain is well above the EU average (5.6 %). Under-employment,
which seems to have a strong structural component,[43] remains
the biggest challenge for this group. Consideration
could be given to creating a comprehensive national strategy to improve the efficiency
of tertiary education and its capacity to adapt to labour market needs. This
strategy could help address skills mismatches, promote company-based internships,
address potential overlaps at regional level and restructure, anticipate and reorient
training and education to better meet future demand, including for green jobs. 
So far, limited progress has been made on
reinforcing the effectiveness of re-skilling training programmes for older and
low-skilled workers, but the government and the regions are working on a common
framework for the future lifelong learning plan. The draft plan
(expected to be finalised in 2014) is intended to identify common issues and
best practice across the Autonomous Regions, in line with a single lifelong
learning framework at national level. Some positive steps were taken in
regulating e-learning professional certificates and updating the national catalogue
of professional certificates. The 2012 labour market reform also envisaged the
widening of supply for occupational and continuous training courses and the
creation of a new training account for each individual worker, but
implementation of those measures has not yet been completed. 
Social
policies
The prolonged
crisis has had a heavy impact on the number of people at risk of poverty or
social exclusion,[44]
which reached 28.2 % of the Spanish population in 2012.[45] The deterioration
of the labour market and the sharp escalation in the number of
households with low work intensity[46] have
led to a rise in the rates of people at risk of poverty or social exclusion amongst
the working-age population and large
increases in poverty
amongst both unemployed and employed people, with in-work poverty rates
reaching the third-highest level in the EU (12.3 %) in 2012, mainly as a result
of lower household work-intensity. Poverty levels among children (29.9 %
amongst children aged up to 17) and young adults (28.4 % amongst people aged 18-24)
were also very high. Various groups at particular risk, such as people with
migrant background,[47] those
with disabilities and Roma people, suffer disproportionately from poverty
and/or social exclusion (and in most cases, this is further aggravated for
women). Disparities more generally between these groups and the rest of the
population have also increased over time.
The
social protection system faced difficulties in responding to growing social
needs.
Within the EU, Spain is one of the Member States where social protection has had
the least impact on reducing poverty, in particular child poverty.[48]
Social assistance and benefits suffered from low coverage and effectiveness (with
high levels of non-coverage rate for poor people with jobs),[49] with
limited redistributive effects across different groups at risk. In addition,
limited coordination between employment and social services (including those at
regional and local levels) hampered the effectiveness of active labour market
policies for those further away from the labour market. A complex administrative
process for accessing minimum income schemes also hinders the smooth transition
between social assistance and reintegration into the labour market. Access to
long-term care and early childhood education and care was also limited. 
Newly adopted measures
aim to address growing inequalities. These measures pay particular attention to
the needs of disadvantaged population groups, but need to be promptly
implemented and complemented by further actions. Approval
of the second strategic plan for childhood and adolescence (PENIA II) and the 2013-16
national action plan on social inclusion represented steps forward, but these plans still need to be
complemented, at least, by the comprehensive plan for family support (PIAF),
announced by the government. These plans, combined with the 2013 annual employment
plan, also provided a relevant policy framework for promoting active inclusion,
although they include a quite limited number of new measures. The 2014 national
reform programme refers also to concrete plans to promote the social inclusion
and labour market integration of other specific vulnerable groups, like people
with disabilities or people dependent on drugs. The programme for professional
requalification (PREPARA programme) also played an important role both in terms
of activation and providing a last-resort safety net, yet the results show the
need to improve its capacity for labour market reintegration .[50] Lastly, the national reform programme
recalls the mainstreaming of social issues in other policy areas, such as
energy (with specific clauses for small vulnerable energy consumers) and social
housing (see section 3.4).

3.4.                
Structural measures
promoting sustainable growth and competitiveness 

Progress on structural
reforms promoting growth and competitiveness continues, although this has been uneven
across policy measures. Removing obstacles to
competition in product and services markets and barriers to the growth of firms
is crucial to encourage productivity and employment creation and to foster the
reallocation of resources towards more productive and sustainable sectors,
including the tradable sector. Removing these obstacles may result in
significant growth (see Box 6). 
In
2013, Spain received a country-specific recommendation concerning product and
services markets, the business environment and network industries. The
analysis in this SWD leads to the conclusion that Spain has made some progress
on measures taken to address these recommendations. Several
reforms have progressed broadly in line with the plans in the 2013 national reform
programme and with the 2013 country-specific recommendations. However, some key
measures, such as the reform of professional services and associations, continue
to be delayed and implementation of other reforms remains at an early stage.
Some progress has been made in the network industries, where the authorities
took steps to address the electricity tariff deficit, and are studying ways to
minimise the contingent liability for public finances stemming from
unprofitable transport infrastructure. Given the wide scope to improve
regulation and competition in product and services markets and network
industries, it is crucial that the independence and autonomy of the competition
authority and sectoral regulator is preserved.
Box 6: Potential impact of
structural reforms on growth – a benchmarking exercise
Structural reforms are
crucial for boosting growth. It is therefore important to know the
potential benefits of these reforms. Benefits of structural reforms can be
assessed with the help of economic models. The Commission uses its QUEST model
to determine how structural reforms in a given Member State would affect growth
if the Member State narrowed its gap vis-à-vis the average
of the three best EU performers on key indicators such as the degree of
competition in the economy, skills of the workforce or labour market
participation. Improvements on these indicators could raise Spain's GDP by about 6% in a 10-year period. Some reforms could have an effect even within
a relatively short time horizon. The model simulations corroborate the analysis
of Sections 3.3 and 3.4, according to which the largest gains would likely stem
from reducing regulatory fragmentation, improving the average skill level of
the working age population and increasing participation rates among women.
Skill-enhancing measures could have a major impact on GDP, but only in the very
long term. Over a 50-year horizon, such measures could raise GDP by about 7.8% (see
note).
Table:
Structural indicators, targets and potential GDP effects [51]
Source: Commission services. Note: Simulations assume that all Member States undertake reforms which
close their structural gaps by half. The table shows the contribution of each
reform to total GDP after five and ten years. If the country is above the
benchmark for a given indicator, we do not simulate the impact of reform
measures in that area; however, the Member State in question can still benefit
from measures taken by other Member States.[52] *The long-run effect of increasing the share of high-skilled
population would be 0.5% of GDP and of decreasing the share of low-skilled
would be 7.3%. **EU average is set as the benchmark.
Products
and services markets 
The
law on the guarantee of market unity, which aims to address regulatory
fragmentation in Spain internal market, came into force on 11 December 2013. Its
goal is to make it easier for operators to take advantage of economies of scale
and scope in the market by providing unrestricted access to economic activities
and the right to perform and expand these throughout Spain. Full implementation
of the law is of utmost importance. To that end, effective coordination and
cooperation among the different levels of government is critical, in particular
when it comes to enforcing provisions on supervising economic operators and
amending sector specific legislation to remove inconsistencies.[53] The
law also sets out procedures to monitor the application of its provisions. These
includes a catalogue of good and bad practices which may affect market unity
(to be produced by the newly created secretariat of the Council for Market
Unity), the planned dissemination of regulatory quality indicators, the new
powers given to Spain's Competition Commission to file administrative appeals with
regard to situations contrary to the law and, more generally, the outcome of
the sectoral conferences where regional and central government representatives
discuss and agree legislative amendments. In addition to measuring progress in implementing
the law, these procedures would provide very valuable information, should
further legislative action be required in the interest of freedom of
establishment and movement and the simplification of burdens. 
The
draft law on dis-indexation, submitted for parliamentary approval in December
2013, aims to discontinue current indexation schemes on fees and public sector
contracts.
It prohibits automatic and periodic updating of prices based on general price
indices. However, it permits periodic and non-periodic updates of those values
on an exceptional basis, based on changes to specific costs. The draft law also
provides for new indexation mechanisms to be applied on a voluntary basis on
privately agreed prices, such as housing rents, which would yield lower price
increases than indexation based on the consumer price index. Indexation schemes
for collective bargaining, financial sector instruments and pensions are
excluded from the scope of this reform, as some of them have their own
dedicated legal instruments (e.g. pensions). The law needs to be accompanied by
secondary legislation, however, to set out the details on periodic and
non-periodic indexation. Nevertheless, the principles of the law have already come
into effect on public sector contracts with the 2014 budget law.
The
adoption of the law on professional services continues to be delayed, as it
faces resistance from interest groups. In addition to
the job creation potential, reforming professional services would lift the
competitiveness of the overall economy, given that they are an input for other
sectors. Although work started in the previous legislature, it was only in
August 2013 that the first draft law (anteproyecto de ley) was approved
by the government. The draft aims to set out the professions requiring
registration with a professional organisation. It reviews the rules on
membership fees, transparency and the accountability of professional bodies. It
also safeguards the principle of market unity in the access to and exercise of
professional services. The long-term impact of the reform was originally estimated
by the government at 0.7 % of additional potential GDP and lower inflation of
0.24 % relative to the baseline. A bold approach in the various areas addressed
by the proposal is needed for the reform to have these effects. 
Barriers
to competition in the postal services sector remain.
Although there are several postal operators competing in
the Spanish market, the universal service provider Correos still holds
close to 90 % of the postal market for letters. Access to the postal network
for alternative operators is hindered by the Spanish postal systemʼs use
of discriminatory prices for some operators.
Recent
measures to improve the business environment aim to support company creation
and growth and to reduce administrative burdens. The law on
entrepreneurship, adopted in September 2013, includes measures to support the
internationalisation of businesses, reduce the cost and time of creation of
private limited companies, simplify administrative burdens, promote SME
participation in public tenders and allow partial debt discharge in the event
of corporate insolvency. The law on environmental assessment, adopted in
December 2013, aims to speed up licensing for environmental programmes, plans
and projects. There has been further simplification in the requirements for
opening small-scale retail outlets, removing the need for municipal permits for
the premises or operation of small shops and, linked to this, the "Emprende
en Tres" initiative to facilitate business licensing. These measures
are steps in the right direction. They can however, be complemented by further
action. To illustrate, there is need to issue implementing legislation so that
private limited companies can be created through one stop shops within the
shorter deadlines set out in the September 2013 entrepreneurship law. There is a
case for continuous review of regulatory barriers to company growth given Spain's gap compared with other euro area countries on company size. This includes
evaluating lock-in effects originating from corporate income tax, as suggested
recently by the committee of experts on tax reform. Lastly, good cooperation
with the regions is needed for successful implementation of the environmental
assessment law, so that agreement can be reached at the environment sectoral
conference on enforcing the shorter deadlines set out in this law, simplifying
legislation and standardising procedures in the interest of efficiency and
market unity. 
Barriers
to entry for large-surface retail establishments continue to limit competition
in the retail sector, despite recent measures. While the
transposition of the Services Directive largely eliminated the dual licensing
system (i.e. licensing by both municipalities and regions) to set up large
retail establishments, the revised rules authorise regional governments to create
specific authorisation schemes. This allows the de facto continuation of
the dual licensing system.[54]
Against this backdrop, the government and the regions plan to explore ways to remove
unjustified barriers to establishing retail outlets, including for large outlets,
at the sectoral conferences on retail trade, held to discuss the implementation
of the market unity law. 
Research,
development and innovation
Spainʼs
research and innovation system faces challenges and shortcomings. The
economic crisis has led to reductions in public-sector and private-sector
R&D funding,[55]
thus lowering the likelihood of reaching the 2 % R&D intensity target by
2020. Spain's public-sector R&D expenditure does not provide sufficient incentive
for public-sector research organisations and universities to cooperate with the
private sector. Insufficient finance for fast-growing and innovative firms at the
height of the crisis has hampered the transformation of research and innovation
into commercial products. The system’s science base is not grounded on
international peer review and the allocation of institutional research and
innovation funding in Spain is, generally speaking, not based on performance
criteria. Innovation policy is devolved to regions, with a great need for more effective
coordination between the central and regional level to avoid overlaps and to
increase the impact of smart specialisation. These challenges and shortcomings
have been compounded by a reduction in the number of technology-based
innovative firms. Against this backdrop, in 2013, the Spanish government
adopted a national strategy for science, technology and innovation and a plan
to implement this, but the new strategy and plan still need to be backed by
public funding. The funding needs to be sufficient to address the health,
energy, transport and climate societal challenges set out, leverage private
investment and make best use of available EU research and innovation funding
programmes (such as Horizon 2020, European structural and investment funds,
COSME and others). The creation of the new State Research Agency, which is
tasked with the efficient management of public R&D investment, is also
pending. The success of the Agency will require the use of best practice in
fund allocation, including independent peer reviews of projects by
international experts and evaluations based on the innovative capacity of
projects. 
Rental
market
Measures
have been taken to create a larger and more efficient housing rental market. Law
4/2013 on the promotion of the rental housing market brings about significant changes,
strengthening the legal rights of owners but also providing greater flexibility
in ending rental agreements. A more flexible and efficient rental market may
help the adjustment process for the housing market and, together with the
elimination of tax-deductible mortgage payment from the beginning of 2013, is
expected to reduce the bias towards home-ownership. It will also support labour
mobility and in the long run help reduce the volatility of house prices.
Social
housing is being appropriately redirected towards renting.
Social housing in Spain has been traditionally provided for owner-occupation. Recently,
the policy has been directed more towards providing support to tenants, partly to
address the negative social consequences of the housing crisis. Although it
remains a very small percentage of the total, the number of repossessions of
primary residences has increased in recent years. (According to Bank of Spain
data, in both 2012 and 2013, around 39 000
primary residences were repossessed, out of about six million mortgaged; about
half of these were voluntary repossessions, and about one third with dation in
payment. As mentioned in the 2014 national reform programme, the Spanish
authorities introduced a temporary moratorium on evictions for households that meet
vulnerability criteria and reached an agreement with banks to establish a
social housing scheme (fondo social de vivienda), where banks transfer a
proportion of their housing stock into a social rental sector. Take-up
rates have been relatively low, possibly due to
restrictive eligibility criteria. Meanwhile, the percentage of the
population living in households where total housing costs represent more than
40 % of disposable income increased, from 8.3 % in 2007 to 14.3 % in 2012. 
Energy
The
authorities took significant measures to reduce the electricity tariff deficit,
but the 2013 deficit remained large. Energy policy choices
in Spain over the last decade resulted in an increase in regulated costs of the
electricity system. Substantial private investment in gas-fired and renewable
generation and increases in support for developing renewable energy coincided with
the economic crisis, leading to lower consumption and generation overcapacity.
As access tariffs were fixed below the system's costs, the system has generated
a large tariff deficit over recent years. Following a number of measures
adopted in 2012 and early 2013, a significant reform was initiated in July
2013.[56]
The reform introduces the principle of budgetary balance, to be implemented
from 2014, and envisages an overall reduction in regulated costs, such as the
remuneration of transmission and distribution activities, capacity payments,
and, in particular, subsidies for renewable energy. These changes have led to
much regulatory uncertainty and legal challenges from energy companies. The tariff
deficit is estimated to have exceeded EUR 3.6 billion (0.35 % of GDP)
in 2013, in spite of the government's intention to have zero tariff deficit in
that year. In November 2013, the government cancelled the use of the budgetary
resources to cover the electricity tariff deficit, creating a funding gap. The
five incumbent electricity companies will have to finance that deficit,
receiving collection rights in exchange. The cumulative amount of tariff debt,
not including the 2013 deficit, is estimated by the authorities at some EUR 26
billion (2.5 % of GDP). 
Competition
in the electricity wholesale and retail market appears to be limited. At
various times, the competition authority has claimed that the degree of
competition in the wholesale market is insufficient, with detrimental effects
for electricity prices.[57]
Consumers' overall assessment of retail electricity market is the second lowest
in the EU and satisfaction with the choice of available suppliers is well below
the EU average.[58]
A new method for setting electricity prices for domestic consumers will start
to be applied from July 2014, more closely linked to wholesale market prices.
The new system could stimulate more competition between electricity suppliers,
but may also result in higher price variations over time. 
Energy
represents a major input cost for the economy that could be reduced by
enhancing energy efficiency. The new national energy efficiency action
plan, to be submitted in the first half of 2014, details an ambitious energy
efficiency strategy and reports significant progress in recent years. Spain is currently on track to achieve its 20 % renewable energy target by 2020, with 14.3
% of energy currently provided by renewable sources. This momentum needs to be maintained,
as increased energy efficiency and a higher share of renewables would lower Spainʼs
energy import dependency, currently one of the highest in the EU. In
particular, renovation of the building stock could improve energy efficiency
and stimulate job creation. Some recent measures, while necessary to reduce the
very high overall electricity tariff deficit, may lead to closure of
electricity plants. The planned access tariffs for self-consumption of
electricity would primarily affect solar photovoltaic installations and risks
making these uneconomical for households and small consumers. The recent
reduction of support for cogeneration (where heat and power are produced
simultaneously) may lead to cogeneration installations being shut down. 
Cross-border
transmission capacity with France is being improved, but still falls short of that
required for the Iberian Peninsula to be a part of the European energy market. In
2015, a new electricity line is expected to be operational on the French
border, doubling the interconnection capacity between France and Spain. This is currently provided by four lines, corresponding to 3 % of peak demand in Spain. The authorities are exploring further extensions to interconnection capacity, so
that Spain and Portugal could be better integrated with the European
electricity network. In the area of gas, the key challenge will be to create an
Iberian gas hub to encourage wholesale and retail competition and market
liquidity. Some progress has been seen on improving gas interconnection
capacity with France, but developing interconnections further would allow more
diversity of supply.
Transport
An
over-sized transport network is creating liabilities for public finances. When selecting
transport projects Spain seems to have given higher priority to increasing
geographical cohesion, than improving efficiency, so that investment plans
still include high-speed railway lines and motorways in areas with negligible
traffic. Due to insufficient strategic planning at national level, port
expansion projects potentially leading to overcapacity are being promoted,
while improving railway connections with major ports has often been neglected
and delayed. The authorities have not yet set up an independent observatory to
help evaluate future major infrastructure projects, as recommended in the 2013 country-specific
recommendations, although they have created a database containing economic,
environmental, traffic-related and other indicators to support analysis prior
to investment in infrastructure. In addition, it is not clear whether public-private
partnership projects are subject to sufficient scrutiny to avoid overoptimistic
traffic estimates with consequent potential risks for public finances. The 2014
national reform programme announces the setting up of an advisory council to
appraise infrastructure projects.
The
government is exploring ways to minimise negative spillover effects on public
finances from unprofitable motorways. Operators of ten
toll motorways which have low traffic flows are facing financial difficulties,
with non-negligible contingent liabilities for the state. The majority of these
operators have already been declared insolvent, and the government has injected
funds to help them. A viable solution to this situation has not yet been found.
It would have to address the structural low profitability and underutilisation
of the toll motorway network, compared with toll-free motorways and high
capacity roads running in parallel. The government proposed setting up a public
company to take over the insolvent motorways and presented a restructuring plan
to creditors. There are currently no plans to introduce user charges on the
motorway network.
Effective
competition in the railway passenger and freight services is currently prevented
by technical and legal obstacles, hampering the efficient use of the extensive
infrastructure stock. Low interoperability with the rest of
the European railway network (e.g. different gauge, rolling stock, and
technical requirements), poor connections to seaports, and preferential
treatment given to the state-owned Spanish rail operator Renfe for
transporting passengers and freight hinder new companies entering the market.[59] Some
measures to promote competition in railway transport have been adopted, including
splitting up Renfe Operadora into four entities, and reviewing
infrastructure access charges.[60]
The other measures planned to help strengthen competition in rail freight
include a one-stop shop for administrative procedures, opening up freight
terminals to new entrants and breaking Renfeʼs quasi-monopoly on
rolling stock. The railway passenger market has been opened, though only for
touristic services.[61]
Nevertheless, there is a clear economic justification for opening up access to
high-speed lines, as they are currently underused. Moreover, the experience
from other Member States shows that market opening in public service obligation
could bring substantial savings. An opening up of high-speed lines and long
distance services has been announced and is expected to take place in the first
half of 2014. 
Some obstacles to developing air and maritime transport have been
identified. The costs of airport services in
individual airports operated by Aena Aeropuertos are not transparent. Some
progress has been observed with the setting up of an independent regulator and a
more independent slot coordinator,[62] but enforcement will be crucial. The
existing arrangements for cargo handling companies in seaports restrict their
freedom to employ workers, posing a barrier to attracting investment and
creating job opportunities in ports.
Environment
Spain is expected
to miss its 2020 greenhouse gas emission target. Under the
Europe 2020 Strategy, Spain committed to reducing its greenhouse gas emissions
in the sectors not covered by the EU Emissions Trading System (ETS) by 10 %
between 2005 and 2020. According to the latest national projections based on
the existing measures, it is expected to miss this target.
Spain
also faces several other environmental challenges, including saving water
through a better water pricing policy. Despite serious
water provision issues, water tariffs in Spain are among the lowest in the EU.
Higher transparency of prices and subsidies is needed, to exert pressure on
agricultural activities to improve water management in the sector, including
better waste-water treatment. The main challenge in the waste sector is to
increase levels of waste prevention and recycling. Flood prevention measures
are sometimes disregarded, despite being cheaper than the costs of flood
recovery.[63]
Air pollution in the major cities is largely due to traffic congestion, as private
transport use exacerbates seasonal problems with air quality. Addressing
environmental issues could also potentially boost job creation, for instance by
promoting sustainable tourism.[64]

3.5.                
Modernisation of public administration 

In 2013, Spain received a country-specific recommendation concerning public administration and the
judicial system. The analysis in this SWD leads to
the conclusion that Spain has made substantial progress on measures concerning
public administration and some progress on measures in relation to the judicial
system (for the full CSR assessment, see the overview table in Section 4). The
law on local administration reform has been adopted, as has a plan to reform
public administration, the implementation of which is ongoing. Reforms in the
judicial sector have continued, with varying degrees of completion. Following
approval of reforms, focus has moved to their implementation. Seamless
coordination with the administrative bodies involved will be required for the
reforms to bear fruit.
Fiscal
consolidation needs will remain significant over the next few years, and so
will pressure on public administration reform to deliver efficiency gains and reduce
operating costs. In June 2013, a
group of experts commissioned by the government published a set of 217
recommendations on reforming public administration, which rose to 221
subsequently. They aim to create efficiency gains and fiscal savings at all
levels of government. They fall into four categories: i) recommendations to
remove duplicate structures at central and regional level; ii) recommendations to
reduce administrative burdens; iii) recommendations to improve the management
of shared services and reduce overheads; and iv) recommendations to rationalise
the central government institutional administration. These are currently being
implemented. At the time of writing (i.e., mid-May 2014), 29 % of the measures
had been adopted and the remaining 71 % had been launched.[65] The
expectation in the 2014 National Reform Programme is that 50% of the measures
could be completed before the end of the year. Flagship reforms (in terms of
potential savings and/or efficiency gains) scheduled for 2014 include a new law
on administrative procedure, amendments to the law on public grants, the centralisation
of scattered public sector checking accounts and changes to the law on Spain's
civil service, to cater for proper human resource planning, training and
evaluation of public servant's performance. As in other policy areas, the
cooperation of regional governments is crucial for the success of the reforms. 
There
is scope for improvements in Spain's law-making process. Despite
progress made by the 2011 law on sustainable economy, the quality of the law-making
process in Spain could be further improved by publishing impact assessments, pursuing
a proper analysis of policy options linked to objectives and doing quality
checks on impact assessments by independent bodies. More efforts could also be
placed on the ex-post evaluation of enacted legislation. This is particularly
important as attention shifts to implementing reforms that have been adopted
recently. 
In
December 2013, an ambitious local administration reform was passed. It aims to
clarify the powers of municipalities in order to: i) remove duplications with
other government sub-sectors at local level; ii) streamline the number of local
bodies; iii) rationalise the services provided at local level; and iv) make the
cost of providing local public services more transparent. Implementing this law
is expected to bring significant budgetary savings, the bulk of which will be
concentrated in 2015 and 2016 (EUR 6.1 billion, 76 % of total savings according
to government estimates). However, the reform is facing resistance from some
municipalities and the final savings figures could differ, due to uncertainties
surrounding the implementation of provisions on merging municipalities, on the
coordination by provincial councils of ‘essential’ services provided by smaller
municipalities, the gradual take up of municipal health and social services
competencies by regions and the rationalisation of local entities'
institutional administration.
Public
procurement policy can contribute to competition and fiscal savings. Recent
policy measures require all general entities to publish calls for tenders and
their results on the public- sector procurement platform.
Measures to develop centralised procurement are currently being adopted.
Progress has been made, in particular on pooling purchases of health supplies.
However, the current level of e-procurement use is negligible. As with centralised
purchasing, e-procurement can save resources. It can also increase transparency
and create incentives to streamline procedures. Coordination with regional and
local government in gradually increasing the use of e-procurement is needed, including
ensuring that appropriate links are created between current electronic
platforms.
Judicial reform
is at varying stages of completion and/or implementation. The
February 2013 reform of court fees and legal aid reduced the fees that had been
introduced in November 2012 and broadened the eligibility criteria for legal
aid.[66]
In December 2013, Spain also completed the transposition of the Mediation Directive[67] by
adopting the remaining implementing provisions on training and registers of
mediators and on electronic mediation. The June 2013 reform on the Council for
the Judiciary brought about some changes in the way members of the Council are
appointed. The latest policy developments consist of the approval by the
Council of Ministers of an ambitious draft reform (anteproyecto de ley) of
the judiciary.[68]
The implementation of previous reforms — some of them dating back to 2003 —
continues. However, it is important that the momentum is maintained. Examples
include developing the Oficina Judicial, a common pool of resources to
assist judges, and developing better links between regionsʼ electronic
case management systems. Overall, the amount of legislative reforms to come is
considerable, but so, too, is the need for implementation of reforms that have
been already passed. Data available for 2010-12 show that length of proceedings
and rate of resolving cases have improved for litigious civil, commercial and
administrative cases in the court of first instance.[69] Empirical
literature available show that reducing the backlog ratio and disposition time
has had significant positive effects on companies birth rates and attraction of
foreign direct investment.[70] 

The authorities
are strengthening anti-corruption policies but more remains to be done. The
most recent measures were adopted in December 2013. They include a law on
transparency, public access to information and good governance, two bills (anteproyecto
de ley) on monitoring party funding and improving the accountability of
central government senior public officials and announced plans to reform
criminal law and criminal procedure law to fight against corruption. These
measures are being introduced against the backdrop of a difficult economic
situation, several high-profile cases investigated in the past few years, an increased
number of lawsuits started and of judgements delivered on corruption-related
crimes.[71]
The perceived level corruption by Spanish citizens relatively high,[72] bringing
the risk of eroding
trust in public institutions. The 2014 EU Anti-Corruption Report[73]
acknowledged the comprehensive programme of legislative reform launched by the
Spanish government to strengthen anti-corruption and integrity-related
policies. At the same time, it noted that Spain does not have dedicated
legislation protecting whistleblowers and regulating lobbying activities and indicated
that there is scope to bolster the Court of Auditor's capacity and powers to
supervise political party funding and to increase the independence of the
office monitoring asset disclosure of central government's senior officials. It
also reported weaknesses with regard to public spending, decision-making and
control mechanisms in regions and local entities, thus calling for enhancing
audit mechanisms and transparency in public procurement and urban development
processes. Equally important is the availability of judicial procedures
ensuring a prompt response to corruption cases, including a rapid execution of
judgments.
 

4.        
Conclusions 

Spain came out of its double-dip recession in the third quarter of 2013
amidst continued economic adjustment, improved market confidence and a gradual
relaxation of financial conditions. GDP growth is
forecast to accelerate and the labour market is showing signs of stabilisation,
but unemployment remains very high and private- and public-sector deleveraging needs
constrain economic growth prospects. The nine country-specific
recommendations addressed to Spain in 2013 highlighted
these and other challenges, and included deficit correction through continued
fiscal consolidation, tax reform, implementing the financial sector programme, completing
the 2012 labour market reform, addressing social problems, reforming product
and service markets, network industries and public administration.
The analysis in this
SWD leads to the conclusion that Spain has made some progress in addressing the
country-specific recommendations issued in 2013. Spain has advanced decisively with the comprehensive policy agenda in the 2013 national
reform and stability programmes and in the CSRs. A number of important reforms
have been passed into law broadly in accordance with the planned timetables. Notably,
Spain has adopted reforms on pensions,
healthcare, independent fiscal institution, public administration, financial
sector, non-bank financial intermediation, labour market, corporate insolvency,
internal market, liberalisation of the housing rental market, and to tackle the
electricity tariff deficit. Full implementation of the reforms is essential to
reap their expected benefits. In this respect, the situation is diverse. While
some reforms are already into force, a majority of them required follow-up
actions and, therefore, implementation is ongoing and
sometimes still at an early stage. Moreover, the implementation process is not
devoid of risks, including those deriving by the need of joint delivery efforts
by various tiers of government in several cases (e.g. active labour market
policies, market unity, public administration reform). In addition, some key items,
such as the reform of professional services and associations, have been delayed.
The 2014 national reform and stability programmes and
the Commission's analysis in this SWD confirm the overall robustness of last
year's reform agenda and are largely set in a line of continuity. The focus is
on completing outstanding items, complementing them with new measures where
necessary and proceeding swiftly with implementation.
Spain's 2014
national reform programme and stability programme include an agenda of
structural reforms to enhance competitiveness, support employment creation and
boost GDP growth. Maintaining
the reform momentum, while promptly introducing further reforms where
necessary, is essential for consolidating and accelerating the incipient
economic recovery and enhancing growth and job creation. The government's economic agenda for the next twelve months focuses
on two mutually reinforcing pillars: deepening the reforms, and favouring
economic recovery and job creation. However, most measures and reforms listed
in the NRP will only be deployed in full gradually and over the medium-run. A
comprehensive and swift implementation of the many measures announced or
already adopted is paramount.

Overview table 
 
 2013 commitments || Summary assessment[74] 
 Country-specific recommendations (CSRs) 
 CSR 1: Deliver the structural fiscal effort as required by the Council recommendation under the EDP to ensure correction of the excessive deficit by 2016. To this end, implement the measures adopted in the 2013 budget plans at all levels of government, reinforce the medium-term budgetary strategy with sufficiently specified structural measures for the years 2014-16. A durable correction of the fiscal imbalances is predicated upon the credible implementation of ambitious structural reforms which would increase the adjustment capacity and boost potential growth and employment. After achieving the correction of the excessive deficit, pursue the structural adjustment at an appropriate pace so as to reach the medium term objective by 2018. || Spain has made some progress on addressing CSR 1 of the Council Recommendation:     Some progress — The headline target is likely to be slightly overachieved in 2014. However, although Spain plans to meet the headline EDP targets recommended in June 2013, budgetary targets are subject to downside risks (in particular for 2015 and after) and the planned fiscal efforts fall short of the Council's recommendations throughout the programme.       
 Ensure a strict and transparent enforcement of the preventive and corrective measures provided for in the Budgetary Stability Organic Law. || Substantial progress — Compared to 2012, there has been progress on implementing the Budgetary Stability Organic Law, in particular, as regards the availability of detailed and comprehensive evaluation reports of regionsʼ economic and financial plans.. 
 Establish an independent fiscal authority before the end of 2013 to provide analysis, advice and monitor compliance of fiscal policy with national and EU fiscal rules. || Some progress — Spainʼs independent fiscal institution was created by law in November 2013, The creation of Spainʼs independent fiscal institution did not, however, meet the deadline provided for in EU law, and the delay in setting it up has resulted in the AIREF not being able to assess the 2014 stability programme. At the time of writing (i.e., 23 May 2014) the authority had not started operations. 
   Improve the efficiency and quality of public expenditure at all levels of government, and conduct a systematic review of major spending items by March 2014.   || Some progress — Spain did not conduct a specific comprehensive and systematic review of major spending items by March 2014, as recommended in the CSR. However, measures to rationalise spending on health, employment, and public administration provide information on some key expenditure items.  
 Increase the cost-effectiveness of the health-care sector, while maintaining accessibility for vulnerable groups, for example by reducing hospital pharmaceutical spending, strengthening coordination across types of care and improving incentives for an efficient use of resources.   || Some progress — Measures to contain expenditure in the healthcare sector have been gradually implemented. Measures to guarantee access to healthcare for vulnerable groups have been taken, but the number of complaints regarding restrictions on access has grown.     
 Take measures to reduce the outstanding amount of government arrears, avoid their further accumulation and regularly publish data on outstanding amounts.   || Substantial progress — Measures to prevent late payments by the public sector and to establish permanent tools to monitor and control commercial debt in the public sector were adopted in December 2013. This follows measures to pay down commercial arrears through the three waves of the Supplier's Payment Scheme (throughout 2012 and the first quarter of 2014). However, at the time of writing, implementing legislation needed to be adopted, so that the enforcement mechanisms set out in the law could be applied. 
   Adopt the disindexation law to reduce the degree of price inertia in public expenditures and revenues, in time to have it in force by the beginning of 2014 and consider additional steps to limit the application of indexation clauses.   || Some progress — The dis-indexation draft law was sent to parliament in December 2013 and its parliamentary adoption is expected throughout 2014. The law needs to be accompanied by secondary legislation to set out the details of periodic and non-periodic indexation, although its principles have already come into effect on public sector contracts, with the 2014 budget law 
 Finalise by end-2013 the regulation of the sustainability factor so as to ensure the long-term financial stability of the pension system, including by increasing the effective retirement age by aligning retirement age or pension benefits to changes in life expectancy. || Fully addressed — The sustainability factor for the pension system was regulated in 2013 and indexation of pensions was reviewed.   
     CSR 2: Conduct a systematic review of the tax system by March 2014. Consider further limiting tax expenditure in direct taxation, explore the scope to further limit the application of the reduced VAT rates and take additional steps in environmental taxation, notably as regards excise duties and fuel taxes. Take further measures to address the debt bias in corporate taxation. || Spain has made some progress on addressing CSR 2 of the Council Recommendation:   Some progress — The government appointed an expert committee in July 2013. On 13 March 2014, it delivered its report, which focuses on simplifying the tax system and increasing its efficiency. The reform proposal has not yet been adopted by the government.   
 Intensify the fight against the shadow economy and undeclared work. || Some progress — The plan to combat fraud and undeclared work is being implemented, but this work will end in 2014.   
 CSR 3: Implement the financial sector programme for the recapitalisation of the financial institutions, including the measures promoting non-bank intermediation adopted in November 2012.   || Spain has fully addressed CSR 3 of the Council Recommendation 
 CSR 4: Finalise the evaluation of the 2012 labour market reform covering the full range of its objectives and measures by July 2013, and present amendments, if necessary, by September 2013. || Spain has made some progress on addressing CSR 4 of the Council Recommendation:   Some progress — The government published its evaluation of the labour reform in August 2013, and a separate assessment from the OECD, commissioned by the government to complement its own evaluation, was published in December 2013. These evaluations have so far not been followed by announcements of significant amendments to labour market legislation. 
 Adopt the 2013 national Employment Plan by July 2013 and enact swiftly a result-oriented reform of active labour market policies, including by strengthening the targeting and efficiency of guidance.   || Some progress — As part of the reform of active labour market policies, the annual employment plan was published in August 2013. Evaluation of this plan, the 2014-16 activation strategy and a new 2014 annual employment  plan are being prepared. 
 Reinforce and modernise public employment services to ensure effective individualised assistance to the unemployed according to their profiles and training needs.   || Limited progress — Work is underway to improve the cooperation between public and private employment agencies. Apart from the mutual learning programme among regional PES, recently put in place, no further measures were adopted to strengthen public employment services. 
 Reinforce the effectiveness of re-skilling training programmes for older and low-skilled workers.   || Limited progress — Limited progress, despite updating the catalogue of professional certificates.   
 Fully operationalize the Single Job Portal and speed up the implementation of public-private cooperation in placement services to ensure its effective application already in 2013. || Limited progress — Work on the single job portal is ongoing, but it has not been completed. Work on improving the cooperation between public and private employment agencies is also ongoing, but it needs to be fully and effectively implemented.   
 CSR 5: Implement and monitor closely the effectiveness of the measures to fight youth unemployment set out in the Youth Entrepreneurship and Employment Strategy 2013-2016, for example through a Youth Guarantee.   || Spain has made some progress on addressing CSR 5 of the Council Recommendation:   Some progress — There has been progress implementing the 2013-16 youth employment and entrepreneurship strategy. The first evaluation is expected in summer 2014. The draft national Youth Guarantee implementation plan was submitted to the Commission in December 2013. 
 Continue with efforts to increase the labour market relevance of education and training, to reduce early school leaving and to enhance life-long learning, namely by expanding the application of dual vocational training beyond the current pilot phase and by introducing a comprehensive monitoring system of pupils' performance by the end of 2013. || Some progress — Spain has begun a reform of its vocational education and training system, to better adapt young peopleʼs skills to labour market needs and to make vocational education and training more attractive. National authorities are planning to complete the legislative framework after evaluating the first pilot cycle at the end of 2014/15. The organic draft law on the quality of education, which is expected to have a significant impact on reducing early school leaving and improving the quality of education, was adopted in November 2013. It will come into force in stages, over the 2014/15 and 2016/17 academic years. It is therefore too early to assess its effectiveness. Spain is also working on designing its lifelong learning plan. 
 CSR 6: Adopt and implement the necessary measures to reduce the number of people at risk of poverty and/or social exclusion by reinforcing active labour market policies to improve employability of people further away from the labour market     || Spain has made some progress on addressing CSR 6 of the Council Recommendation:   Some progress — The 2013-16 national action plan on social inclusion was adopted in December 2013; its implementation will need to be closely monitored. The 2013 annual employment plan also contains some measures to improve the employability of the most disadvantaged. Other relevant measures include the continuation of the PREPARA programme, a programme for professional requalification. 
 and by improving the targeting and increasing efficiency and effectiveness of support measures including quality family support services.   || Limited progress — Limited progress has been made on measures to tackle child poverty and improve the efficiency of family support services. The approval of the second strategic plan for childhood and adolescence (PENIA II) in April 2013 and of the 2013-16 national action plan on social inclusion in December 2013 send a positive signal, although these have yet to be implemented. They will need to be complemented by other plans, such as the comprehensive family support strategy (PIAF) which should provide a framework for social, legal and economic support and protection for large families, single parents and families with special needs. 
 CSR 7: Urgently adopt and implement the draft Law on Market Unity and speed up all complementary actions needed for its swift implementation.   || Spain has made some  progress on addressing CSR 7 of the Council Recommendation:   Substantial progress — The law on the guarantee of market unity was adopted in December 2013.  Its implementation (including changes to sector specific legislation) is underway, and will continue throughout 2014. Swift and full implementation remains key.   
 Ensure the effectiveness, autonomy and independence of the newly created regulatory authority.   || Substantial progress — Law 3/2013 of 4 June creates Spainʼs Commission for Markets and Competition, by merging Spainʼs Competition Commission with the supervisory and regulatory authorities for energy, telecommunications, postal services, audio-visual industries, railway and air transport. The statutes of the new Commission for Markets and Competition were adopted on 30 August 2013, while its internal operating regulations were adopted on 4 October 2013. 
 By the end of 2013, adopt and implement the Law on professional associations and services, so as to remove any unjustified restriction to the access and exercise of professional activities,   || Limited progress — The adoption of the reform of professional services continues to be delayed. 
 (By the end of 2013, adopt) the Law on Entrepreneurship. Regroup and concentrate support schemes for the internationalisation of firms. || Substantial progress — Law 14/2013 to support entrepreneurs and their internationalisation received parliamentary approval on 27 September 2013. 
 Reduce the number and shorten licensing procedures, including for industrial activities, and spread the use of the "express licence" approach to activities other than retail. || Substantial progress — Law 21/2013 of 9 December on environmental evaluation is expected to ease the licensing of industrial activities by speeding up environmental licensig procedures. The express licensing process was extended, by Law 20/2013 on market unity, to cover selected economic activities (including some manufacturing activities) which are carried out in permanent establishments that have a functional display and public sale area which does not exceed 750 m².      
 Review insolvency frameworks for companies and individuals, including through limiting personal liability of entrepreneurs and easing second chances for failed businesses. || Some progress — The law on entrepreneurship was adopted in autumn 2013 and brought improvements to the framework for corporate insolvency. The Royal Decree Law 4/2014 of 7 March facilitates refinancing agreements to accelerate the deleveraging process. 
 Remove unjustifiable restrictions to the establishment of large-scale retail premises. || Limited progress — No regulatory measures have been taken to remove restrictions on setting up large-scale retail premises. The government plans to discuss regulatory barriers to this at the sectoral conferences. 
 By March 2014, review the effectiveness of the regulatory framework to support the development of the housing rental market. || Substantial progress — In June 2013 the Spanish Parliament adopted the law on promoting the rental housing market. 
 CSR 8: Tackle the electricity tariff deficit by adopting and implementing a structural reform of the electricity sector by the end of 2013.  Intensify efforts to complete the electricity and gas interconnections with neighbouring countries.     || Spain has made some progress on addressing CSR 8 of the Council Recommendation:   Some progress — Despite the Royal Decree-Law 9/2013 on urgent measures to guarantee the financial stability of the electricity system, adopted in July 2013, and the Law 24/2013 on the electricity sector, adopted in December, a significant electricity tariff deficit was registered in 2013. Gas and electricity interconnections with France and Portugal have been expanded, but still fall short of the target.       
 Reduce the contingent liability for public finances stemming from unprofitable transport infrastructure. Set up an independent observatory to inform the assessment of future major infrastructure projects.  Take measures to ensure effective competition in freight and passenger rail services. || Some progress — The government is studying ways to minimise negative spillovers from insolvent toll motorways on public finances. There was no progress on an independent transport monitoring body. Some measures to promote competition in railway freight have been adopted or are in the pipeline, and preparations have been made to liberalise passenger railway services.   
 CSR 9: Adopt in line with the presented timetable the reform of the local administration and define by October 2013 a plan to enhance the efficiency of the overall public administration.       || Spain has made some progress on addressing CSR 9 of the Council Recommendation:     Substantial progress — The reform of local public administration has been passed. Implementation of the experts committeeʼs recommendations on public administration reform is on-going and will continue throughout 2014/15.     
 Adopt and implement the on-going reforms to enhance the efficiency of the judicial system. || Some progress — Spain is carrying out legislative reforms relating to different aspects of the functioning of the judicial system. These reforms are at different stages of completion. The most recent indicators on the efficiency of the justice systems show that length of proceedings and the rate of resolving cases have improved for firstt instance civil, commercial and administrative cases. Progress is still much needed in implementing measures aiming to improve the use of ICT tools. 
 Europe 2020 (national targets and progress) 
 Policy field target ||  Progress achieved 
 R&D target: 2 % by 2020 || Spain is not on track in reaching its national R&D target, in spite of having lowered it in 2013 from     3.0 % to 2.0 % of GDP. In 2012, Spain’s R&D intensity was 1.3 %. Private R&D intensity fell by 1.8 % over the 2007-2012 period despite a shrinking GDP.   Total expenditure in R&D amounted to 13,392 million in 2012, down by 5.6 % compared to 2011. The decrease over the last year was higher in the public sector (-7.4 %) than in the private sector (-4.1 %). At the same time, expenditure in higher education fell by 7.2 % in 2012.  
 Employment rate target by 2020: 74% || The employment rate (20-64) went from 61.6 % in 2011 and 59.3 % in 2012 to  58.2% in 2013 (53.1 % for women). 
 Greenhouse gas emissions, base year 1990: National Target: -10% (compared to 2005 emissions, ETS emissions not covered by this national target) || The change in non-ETS greenhouse gas emissions between 2005 and 2012 was -15 %. According to the most recent national projections submitted to the Commission, and taking into account existing measures, it is expected that the target of 10 % will be missed: A reduction of 2.5 % in 2020 as compared with 2005 is expected (i.e. a projected shortfall of 7,5 percentage points). 
 Renewable energy target: 20 % Share of renewable energy in all modes of the transport sector: 10 % || Spain is currently on track to achieve its 20% renewable energy target: The proportion of renewables in final energy consumption reached 14.26 % in 2012. 
 Indicative national energy efficiency target for 2020: Spain has set an indicative national energy efficiency target of 20%, which implies reaching a 2020 level of 121.6 Mtoe primary consumption and 82.9 Mtoe final energy consumption. || Spain announced the policy measures it plans to adopt to implement Article 7 of the Energy Efficiency Directive. 
 Early school leaving rate target by 2020: 15% || The early school leaving rate was 26.5 % in 2011, 24.9 % in 2012 and 23.5 % in 2013 (provisional figures), far from the national target of 15 %. Some progress has been achieved towards meeting the target. The effectiveness of policies and measures to combat early leaving from education and training is difficult to assess in the light of the evident effect of the prolonged economic crisis on the permanence of young people in the education system. 
 Tertiary education rate target by 2020: 44 % || The tertiary educational attainment rate was 40.6 % in 2011, 40.1 % in 2012 and 40.7 % in 2013 (provisional figures), close to the national target of 44 %. 
 Reduction of population at risk of poverty or social exclusion target by 2020 (in number of persons): - 1.4 / 1.5 million people at risk || The number of people at-risk-of-poverty or social exclusion increased by almost 300 000 between 2011 and 2012, reaching 13 090 000. 

Annex

 Standard
Tables
Table I.
Macro- economic indicators
Table II. Comparison
of macroeconomic developments and forecasts
Table III.
Composition of the budgetary adjustment
Table IV. Debt dynamics
Table V. Sustainability indicators
Table VI. Taxation indicators
Table VII. Financial market indicators
Table VIII. Labour market and social
indicators
Table IX. Product market performance and
policy indicators
Table X. Green growth
List of indicators used in Box 4 on the potential impact on growth of structural reforms. 
Final goods sector mark-ups: Price-cost
margin, i.e. the difference between the selling price of a good or service and
its cost. Final goods mark-ups are proxied by the mark-ups in selected services
sectors (transport and storage, post and telecommunications, electricity, gas
and water supply, hotels and restaurants and financial intermediation but
excluding real estate and renting of machinery and equipment and other business
activities[75]).

Source: Commission services estimation
using the methodology of Roeger, W. (1995). "Can imperfect
Competition explain the Difference between primal and dual Productivity?" Journal
of Political Economy Vol. 103(2) pp. 316-30, based on
EUKLEMS 1996-2007 data. 
Entry costs: Cost of
starting a business in the intermediate sector as a share of income per capita.
The intermediate sector is proxied by the manufacturing sector in the model. 
Source: World Bank, Doing Business
Database. www.doingbusiness.org.
2012 data.
Implicit consumption tax rate:
Defined as total taxes on consumption over the value of private consumption. In
the simulations it is used as a proxy for shifting taxation away from labour to
indirect taxes. The implicit consumption tax-rates are increased (halving the
gap vis-à-vis the best performers) while labour tax-rates are reduced so that
the combined impact is ex-ante budgetary neutral.
Source: European Commission, Taxation
trends in the European Union, 2013 edition, Luxembourg, 2013. 2011 data.            
Shares of high-skilled and low-skilled: The
share of high skilled workers is increased, the share of low-skilled workers is
reduced (halving the gap vis-à-vis the best performers). Low-skilled correspond
to ISCED 0-2 categories; high-skilled correspond to scientists (in mathematics
and computing, engineering, manufacturing and construction). The remainder is
medium-skilled. 
Source: EUROSTAT. 2012 data or latest
available. 
Female non-participation rate: Share
of women of working age not in paid work and not looking for paid work in total
female working-age population
Source: EUROSTAT. 2012 data or latest
available.
Low-skilled male non-participation rates:
Share
of low-skilled men of working age not in paid work and not looking for paid
work in total male working-age population
Source: EUROSTAT. 2012 data or latest
available.
Elderly non-participation rates (55‑64
years): Share
of the population aged 55‑64 years not in paid work and not looking for
paid work in total population aged 55‑64 years.
Source: EUROSTAT. 2012 data or latest
available.
ALMP: Active Labour
Market Policy expenditures as a share of GDP over the share of unemployed in
the population. 
Source: EUROSTAT. 2011 data or latest
available.  
Benefit replacement rate:  Share
of a worker's pre-unemployment income that is paid out by the unemployment
insurance scheme. Average of net replacement rates over 60 months of
unemployment. 
Source:
OECD, Benefits and Wages Statistics. www.oecd.org/els/benefitsandwagesstatistics.htm.
2012 data.
[1] COM(2013) 800 final
[2] COM (2013) 790 final
[3] Apart from the 16 Member States identified in the AMR, Ireland was also covered by an in-depth review, following the conclusion by the Council
that it should be fully integrated into the normal surveillance framework after
the successful completion of its financial assistance programme.
[4] Unemployment
figures in the Commission 2014 spring forecast are calculated with labour force
survey figures at the time of the forecast, according to which the unemployment
rate in 2013 Q4 was 26.0%. However, after the cut-off date of the forecast new
figures have been released based on updated population estimates. According the
new data, unemployment stood at 25.7% in the fourth quarter of 2013.
[5] However, according to the expected evolution of the structural
balance, which is the cyclically adjusted balance net of one-off and temporary
measures, recalculated by the Commission on the basis of the information
provided in the programme using the commonly agreed methodology, the MTO would
not be achieved within the programme period.
[6] The general government deficit targets of 6.3% of GDP in 2013 and
5.5% of GDP in 2014 in last year's stability programme were revised to 6.5% and
5.8% of GDP respectively, in the 2014 Draft Budgetary Plan presented in October
2013.
[7] In the case of Spain, a significant part (estimated at about 0.3
pp. annually) of the difference between the uncorrected and corrected
structural balance stems from methodological changes to the estimation of the
NAWRU, which result in an upward revision in the potential growth estimates for
2013 and 2014 and associated slower closure of the output gap.
[8] The current stability programme was submitted on 30 April 2014
after the cut-off date of the Commission 2014 spring forecast which was 24
April and, therefore, the information provided in the programme was not taken
into account in the Commission's forecast. 
[9] According to the 2014 NRP, during 2014, all budgetary and economic
data on Spain's public administration will be centralised on the Ministry of
Finance's new economic and financial database.
[10] See Council of State's opinion # 606/2013 on the draft law
providing for the creation of an independent fiscal institution in Spain. http://www.boe.es/buscar/doc.php?coleccion=consejo_estado&id=2013-606

[11] See Organic Law 9/2013 of 20 December, on the control of public
sector commercial debt.  
[12] 2013 Report by Intrum Justitia. Liquidity constraints associated
with late payments by the public sector may contribute to put firms out of
business. See European Economy – Economic Papers: The economic effects of late
payments, European Commission, May 2014.
[13] Ageing costs comprise long-term projections of public age-related
expenditure on pension, health care, long-term care, education and unemployment
benefits. See the 2012 Ageing Report for details.
[14] The replacement ratio at retirement is projected to drop sharply
from 72.4 % to 52.1 % by 2030 (44.9 % by 2060). 
[15] See ECFIN country focus ̔̔̔Assessing the impact of a
revenue-neutral tax shift away from labour income in Spain̕, volume 11,
issue 5, April 2014:  http://ec.europa.eu/economy_finance/publications/country_focus/2014/pdf/cf_vol11_issue5_en.pdf,
and references therein.
[16] For instance, the limit is set to EUR 1 000 in Italy and EUR 1 500 in Greece. 
[17] According to official reports, 64 000 companies were closed, 130 500
irregular jobs were identified, and an estimated EU 3.2 billion savings were
achieved between 2012 and mid-2013 as a result of checks on compliance with
unemployment regulations.
[18] Unemployment benefits were withdrawn from around 60 000 beneficiaries
(14.8 % more than in 2012, representing EUR 0.9 billion savings), due to
non-compliance with access and maintenance requirements.
[19] See in particular recommendations 113 and 114. 
[20]http://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/index_en.htm).
[21] The Commission and ECB press release is available at: http://europa.eu/rapid/press-release_MEMO-13-1153_en.htm.
See also Winter 2014 Review Report for more in-depth discussion.
[22] The increase in the non-performing loan ratio in 2013 was driven by
the higher stock of impaired assets but also, increasingly, by the denominator
effect, i.e. shrinking total loan portfolio as well as by the reclassification
exercise of the restructured loans portfolio performed by banks on guidance
from Banco de España. 
[23] Sareb (Sociedad de Gestión de Activos procedentes de la
Reestructuración Bancaria) was created in the context of the financial
assistance programme to manage real estate and development assets transferred
by the Spanish financial institutions, which benefitted from state aid.
[24] Instituto de Crédito Oficial. 
[25] Mercado Alternativo de Renta Fija, Alternative Fixed-Income
Market
[26] See the Commission Recommendation on a new approach to business
failure and insolvency of 12 March 2014, C(2014) 1500 final, available at: http://ec.europa.eu/justice/civil/files/c_2014_1500_en.pdf.
[27] In particular, it has extended the application of debt
restructurings, provided for a partial debt discharge after foreclosure on
primary residences, and established a temporary two-year moratorium on
evictions of very vulnerable debtors.
[28] For further details, see the 2014 Joint
Employment Report, COM(2013)801, which includes a scoreboard of key employment
and social indicators.
[29] The employment rate of women stands at 53.1 %, vs. 58.2% for men. 
[30]
In 2013,
training and apprenticeship contracts increased by 75% y-o-y (totalling 106 100
contracts).
[31] In accordance with the 2013 Council Recommendation, the government
published an evaluation of labour market reform in August 2013, while the OECD
independent evaluation, commissioned by the Spanish authorities, was finalised
in December 2013.
[32] See also the 2014 in-depth review for Spain, published on 5 March: http://ec.europa.eu/economy_finance/publications/occasional_paper/2014/pdf/ocp176_en.pdf
[33] In Spain, the maximum probation period for permanent contracts is
set by the relevant collective agreement (if no such agreement exists, the
periods are six months for employees with a degree and two months for other
employees). Across the EU, maximum probation periods range from less than one
month to twelve months; in a majority of Member States it is between three and six
months.
[34] The new simplified online tool groups contract templates into four broad
categories: permanent, temporary, training and apprenticeship, and internship. However,
this administrative simplification has not been accompanied by a streamlining
of the number of contractual arrangements (currently 42). 
[35] For
recent comparative data and description of the degree of stringency of EPL in
OECD countries, see OECD Employment Outlook 2013 at
http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm
[36] The first distribution of funds under the new model took place in November
2013. In 2014, 40 % of the funds will be distributed according to the results
achieved in 2013, 25 % according to strategic objectives (annual) and 15 %
according to the structural objectives (long-term), set in the 2013 annual
employment plan.
[37] National data point to 120 000 young persons benefitting from the
strategy in 2013, of which 77 300 young self-employed workers and 34 400
traineeship contracts.
[38] Spain presented a Youth Guarantee
implementation plan (Plan Nacional de Implantación de la Garantía Juvenil en
España) in December 2013: http://www.empleo.gob.es/es/estrategia-empleo-joven/index.htm.
[39] Pursuant to the Council Recommendation of 22 April 2013 on
establishing a Youth Guarantee (2013/C 120/01): "ensure that all young
people under the age of 25 years receive a good-quality offer of employment,
continued education, an apprenticeship or a traineeship within a period of four
months of becoming unemployed or leaving formal education".
[40] The regions of Canary Islands (26, 1%), Andalusia (25,2%) and
Extremadura (24%) have the highest ratio of NEET young population and Navarra
(11.1%) and Basque Country (12,7%).
[41] All Autonomous Regions except the Basque Country, Catalonia and Andalusia.
[42] Spain remains below the OECD average in mathematics, reading and
science, according to the 2012 OECD Programme for International Student
Assessment (PISA).
[43] Since 1996, fewer than 50% of graduates have reported finding a job
matching their level or field of education.
[44] This indicator corresponds to the sum of people who are at risk of
poverty, severely materially deprived or living in households with very low
work intensity. People are counted only once even if they fall into several
sub-indicators. Persons at risk of poverty have an equivalised disposable income
below 60 % of the national median equivalised disposable income after social
transfers. Material deprivation covers indicators relating to economic strain
and durables. Persons are considered living in households with very low work
intensity if they are aged 0-59 and the working age members in the household
worked less than 20 % of their potential during the past year.
[45] The general fall in income in the years following the height of the
crisis led to a significant drop in the level of the poverty line, indicating a
sharp fall in the living standards of the poorest. Poverty figures are higher if
the poverty line is set at the peak of the boom levels (2007 incomes). 
[46] People living in households with very low work intensity are people
aged 0-59 living in households where the adults work less than 20 % of their
total work potential during the previous year.
[47] The proportion of migrants facing severe material deprivation was
17.9 % in 2012, compared to 5.8 % for the total population residing in Spain.
[48] The distribution of family benefits is unfavourable to the poorer
quintiles of the population who receive proportionally less family benefits based
on the number of children. Average spending per child increases with household
income, while poor families with children receive lower benefits. This
regressive distribution of benefits is partly due to the measuresʼ focus
on newborn babies and young children, who tend to be over-represented in higher
income quintiles.
[49] The non-coverage rate of at-risk-of-poverty and unemployed people
is 35.7%, being defined as the proportion of individuals aged 18–59 who live in
a jobless household and who are at risk of poverty, but whose total
benefits/allowances received is less than 10 % of their total net disposable
household income. The net income of people on social assistance relative to
median income is 31.0%
[50] See Royal Decree Law 1/2013 of 25 January.
[51] Final goods sector mark-ups is the difference between the selling
price of a good/service and its cost. Entry cost refers to the cost of starting
a business in the intermediate sector. The implicit consumption tax rate is a
proxy for shifting taxation away from labour to indirect taxes. The benefit
replacement rate is the % of a worker's pre-unemployment income that is paid
out by the unemployment scheme. For a detailed explanation of indicators see
Annex.
[52] For a detailed explanation
of the transmission mechanisms of the reform scenarios see: European Commission
(2013), "The growth impact of structural reforms", Chapter 2 in QREA No.
4. December 2013. Brussels; http://ec.europa.eu/economy_finance/publications/qr_euro_area/2013/pdf/qrea4_section_2_en.pdf
[53] The 2014 National Reform Programme describes the planned amendments
to sector specific legislation in areas such as railways, gambling, funeral
services, social services, retail trade, urban planning, environment,
industrial licensing, waste management, education services, temporary
employment agencies, health and veterinary services, hunting and fishing and
consumer protection.
[54] See CNC (2011), Report on the
relations between manufacturers and retailers in the food sector. 
[55] In 2012, Spain’s R&D intensity stood at 1.30 %. Private R&D
intensity fell by on average by 1.8 % over 2008-12 despite a shrinking GDP.
[56] The Royal Decree Law 9/2013 of 12 July on
urgent measures in the electricity sector. The law on the electricity sector
(Law 24/2013), adopted on 26 December 2013.
[57] CNC, IPN 103/13 Anteproyecto de Ley del sector eléctrico.
[58] Consumer Markets Scoreboard (to
be published in June 2014), http://ec.europa.eu/consumers/consumer_research 
[59] Informe sobre la competencia en el
transporte de mercancías por ferrocarril en España,
CNC, 2013.
[60] Royal Decree-Law 1/2014.
[61] Royal Decree-Law 4/2013.
[62] Royal Decree-Law 1/2014.
[63] RPA (2014) Study on economic and social benefits for the European
Semester,
http://ec.europa.eu/environment/integration/green_semester/pdf/RPA%20Final%20Report-annexes.pdf.
[64] http://ec.europa.eu/environment/enveco/studies.htm#3
[65] Some reform measures have been described in dedicated paragraphs,
such as the law on the guarantee of market unity (see 3.4) or the local
administration reform.
[66] A legislative proposal to further reform the legal aid system is
currently before parliament.
[67] Directive 2008/52/EC of 21 May 2008 on certain aspects of mediation
in civil and commercial matters.
[68] The draft proposal aims to modify the structure of the judiciary to
ensure a more efficient division of workload, in particular through the
creation of the "tribunales provinciales de instancia". It
also fosters the specialisation of judges, it reinforces the legal safeguards
that guarantee the independence of judges and it extends the months of judicial
activity to the whole year. Finally, it entrusts the management of the Civil
Registry to the "judges of peace". Actual changes to court locations
(i.e., the amendment of the so-called judicial map will be carried out in
separate legislation. 
[69] Source: 2014 EU Justice Scoreboard.
[70] See European Economy – Economic Papers: The economic impact of
civil justice reforms, European Commission, May 2014.
[71] According to Spain's General Public Prosecutor Office's 2013 Annual
Report, the number of number of lawsuits started for corruption related
offences increased by 17% over 2010 and 2012. The number of corruption related
judgements delivered increased by 151% over the same period of time, with 44%
of the judgements related to abuse of powers (prevaricación administrativa)
and 39% to embezzlement (malversación).  
[72] See the 2013 Special Eurobarometer report. Specifically, 63 % of
respondents (highest percentage in the EU) feel personally affected by
corruption in their daily lives (EU average: 26 %), while 95 % say that
corruption is a widespread problem in the country (EU average: 76 %) and 91 %
state that corruption exists in local and regional institutions (EU average: 77
%). http://ec.europa.eu/public_opinion/archives/ebs/ebs_397_en.pdf

[73] http://ec.europa.eu/anti-corruption-report/
[74] The following categories are used to assess progress in
implementing the 2013 CSRs of the Council Recommendation: No progress: The
Member State has neither announced nor adopted any measures to address the CSR.
This category also applies if a Member State has commissioned a study group to
evaluate possible measures. Limited progress: The Member State has announced some measures to address the CSR, but these measures appear insufficient
and/or their adoption/implementation is at risk. Some progress: The Member State has announced or adopted measures to address the CSR. These measures are
promising, but not all of them have been implemented yet and implementation is
not certain in all cases. Substantial progress: The Member State has adopted measures, most of which have been implemented. These measures go a
long way in addressing the CSR. Fully addressed: The Member State has adopted and implemented measures that address the CSR appropriately.
[75] The real estate sector is excluded because of statistical difficulties
of estimating a mark-up in this sector. The sector renting of machinery and equipment
and other business activities is conceptually part of intermediate goods
sector.