Cos bids farewell to Congress warning that the lack of political consensus "affects economic prospects"

He acknowledges that "it has been an honor" to be governor and appreciates the work of economists, inspectors and other employees of the Bank of Spain

MADRID, 7 May. (EUROPA PRESS) -

The governor of the Bank of Spain, Pablo Hernández de Cos, has warned, in his last intervention before the Congress of Deputies - before his mandate ends next June - that the lack of consensus, in a context of high political fragmentation, would make it difficult to design and implement the structural reforms and fiscal consolidation plan that Spain needs, and would negatively affect the prospects for future economic growth.

In fact, Hernández de Cos has pointed out that the extension of the General State Budgets in 2024 - a document of great importance for the definition of economic policy in each year - shows this risk and confirms that the uncertainty shown by business surveys "it is real".

During his speech this Tuesday at the Economy, Commerce and Digital Transformation Commission of the Congress of Deputies, where he presented the Annual Report of the Bank of Spain corresponding to the years 2022 and 2023, the governor called on the deputies for "great consensus" to face the multiple future challenges that Spain faces.

"As I have pointed out on other occasions, successfully addressing these challenges requires the design and implementation of a comprehensive strategy of ambitious reforms with a vocation for permanence, supported by great consensus," the governor urged in his last speech before the Lower House in front of of the institution, a task that for De Cos "it has been a pride" to perform.

In his speech, Hernández de Cos pointed out that, beyond the short and medium term perspectives, the growth capacity of the Spanish economy in the coming years will be greatly conditioned by a set of large-scale structural challenges.

Among these, the governor has highlighted promoting productivity growth, reducing the high rate of structural unemployment, guaranteeing the sustainability of public accounts, reducing the vulnerabilities of certain segments of households - particularly in relation to accessibility to housing--, face the multiple challenges posed by the ecological transition, and continue strengthening the resilience of our financial system.

In this sense, the organization emphasizes that a rigorous selection of the investment projects to be financed under the NGEU program and an ambitious implementation of the rest of the reforms and milestones that are pending in the Recovery, Transformation and Resilience Plan are essential. (PRTR).

The governor has warned that, according to different indicators, since the international financial crisis there is a deterioration in the perception of citizens' trust in institutions, which is generalized in most countries, but which has been particularly relevant in the Spanish case.

"The message is that it is essential to promote a mechanism to reinforce this confidence in the institutions, the effectiveness and efficiency of public administrations, including, of course, the judicial system," Hernández de Cos reiterated.

In the 2023 annual report, the Bank of Spain has recalled that a reform of the regional financing system is still pending to correct some of the limitations that it has shown over recent decades.

This reform should comply, according to the governor, with the principles of sufficiency of the resources available to the autonomous communities, their fiscal co-responsibility in the financing of their expenses and transparency in the different parameters that determine the functioning of the system and its evolution. . "Likewise, strict application of fiscal rules at lower levels of government is essential," he reiterated.

The reform should also resolve the lack of stability of the system, which has stimulated the promotion, by communities, of negotiating processes as a means of increasing the volume of financing acquired.

Furthermore, the Bank of Spain considers that a possible forgiveness of part of the debt that the autonomous communities have accumulated in recent decades "could have negative effects on the incentives for disciplined fiscal behavior on their part in the future."

And for the Bank of Spain, a particularly relevant element of uncertainty regarding the prospects for the Spanish economy comes from the vulnerability related to the sustainability of public finances, especially in a context of reactivation of fiscal rules on a global scale. European.

According to the report, Spain registered a structural deficit in 2023 close to 3.7% of GDP in 2023, about six tenths higher than that calculated for 2019.

For this reason, the organization has insisted that it would be desirable for the multi-year consolidation plan to be framed within a prudent macroeconomic framework and detail the income and expenditure measures that allow the gradual consolidation of public accounts.

The Bank of Spain considers that it is crucial that the budget consolidation plan be supported by a comprehensive review of the Spanish tax system that evaluates whether, as a whole, the various tax figures present in our country achieve their objectives effectively and efficiently.

In view of this review and eventual reform, which constitutes one of the milestones that have been associated with the receipt of the fifth disbursement of NGEU funds, the organization has recommended increasing the relative weight of taxation on consumption in the country, which is relatively low compared to that of other European economies and that generates, in general, fewer distortions in factor and product markets, through VAT.

In this sense, it considers that the tax benefits applied to consumption taxation in Spain represent a considerable expense - some 53,000 million euros in 2022 - which should be reviewed and evaluated based on its effectiveness and efficiency.

On the other hand, numerous organizations have highlighted the convenience of expanding the personal income tax tax base through the reform or elimination of various tax reductions that are considered inefficient.

Furthermore, the advance of digitalization and the globalization of economic activity requires maintaining efforts to coordinate and harmonize the tax system at the international level, as is being carried out, for example, in relation to the international tax agreements reached. within the framework of the OECD and the G20, as well as in the different EU initiatives aimed at advancing the coordination and integration of corporate taxation and the taxation of digital activities.

Finally, the organization has advocated for improving and increasing environmental taxation, an area in which Spain has been collecting less than other European economies over recent decades.

The increase in this portion of taxation could be accompanied, as the Bank of Spain has suggested, by compensatory measures - some of a temporary nature - to mitigate its impact on certain groups of families and companies that may be especially affected by the ecological transition. .