Illustrative of this point is the fact that the territorial governments are responsible for more than 90% of public spending on education. As regards supply-side policies, the main thing is to bring about an improvement in the capacity of the economy, its agents and its markets to adapt, which enables them to respond flexibly to a changing and highly competitive environment. Better supply-side functioning would help square the continuation of the current strong employment generation with the attainment of productivity gains. The National Reforms Plan lays down a series of measures geared in this direction, and they should be resolutely applied. Moreover, there are areas such as the labour market where it is still necessary to push through reform measures to increase flexibility and efficiency, harnessing the current good times to adopt reforms that will prevent a cyclical change from causing job destruction as occurred in the past. The picture that emerges from the recent information I have set out is that of an economy which continues to show signs of high dynamism, with the prospect of this continuing - with somewhat less momentum - in the coming years. Yet this favourable situation prolonging an exceptionally long upturn should not be understood as signifying the absence of problems in the medium term. On the contrary, over a longer horizon the Spanish economy will have to face major challenges in competitiveness, productive efficiency and the flexibility of the markets for goods, services and factors.

True, various factors will tend to diminish revenue in 2007, such as the entry into force of the personal and corporate income tax reform, the new EU financial perspectives and certain aspects of the labour market reform applied last July. But if we take into account the better-than-estimated closing budgetary balance in 2006 and the continuity of the economic boom scenario, revenue should foreseeably continue to be buoyant, enabling the surplus target set in the draft budget for the coming year to be exceeded. Achieving a higher-than-forecast budget surplus would also be favourable both from the standpoint of the Spanish economy’s conjunctural situation and from a medium-term perspective. In this respect, a budgetary consolidation drive would contribute to setting in place the right foundations for tackling the challenges posed by ageing and the commitment to meet the requirements arising from protection in situations of dependency. In the budget for 2007, some expense items have been accorded particular attention, such as those aimed at improving productivity; in this connection, the resources earmarked for education and innovation and for investment in infrastructure have been increased. The priority given to these items is most appropriate, given the poor productivity figures witnessed. Yet what is important is to ensure the efficiency of the measures undertaken, so that increased resources effectively translate into actual improvements in the Spanish economy's capitalisation and productivity in the medium term. Improving the efficiency of expenditure management by the different tiers of general government is also a vital requirement for maintaining a healthy fiscal position.