Spanish PM announces $8.6 billion stimulus plan

June 1, 2014, 8:03 PM UTC
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A week after a bad stumble in European elections, Spain’s Prime Minister unveiled the first details of a €6.3 billion ($8.6 billion) stimulus package to revive the economy and create much-needed jobs.

Mariano Rajoy told a conference Saturday that his government would approve a packet of measures this week to make life easier for the country’s businesses, including a cut in the main corporate tax rate to 25% from 30% at present.

Over a quarter of the Spanish workforce — nearly 6 million people — is still out of work after the collapse of a real estate boom crippled the country’s banks in one of the most extreme episodes of the euro crisis.

Thanks to a multi-billion rescue package from the euro zone and the IMF, and the game-changing promise by the European Central Bank to do “whatever it takes” to keep the euro zone together, the economy is now growing again and its banks are starting to return to health.  But that didn’t stop Rajoy’s Popular Party losing a third of its seats at last week’s elections–mainly to parties such as the newly-formed left-wing party “Podemos” (“We Can”), which campaigned on a platform rejecting Rajoy’s euro-dictated austerity policies. Rajoy has only a year and a half to go before the next national elections.

Reuters reported Rajoy as saying that the package would include credit to small and medium-sized firms and investments targeting research and development, energy-saving, transport and industrial production.

Measures to fix the public employment service will also be put forward, he said.

“The general idea is to cut taxes. We want families to have more money in their hands, boost consumption, increase the competitiveness of the entire economy, step up savings and contribute to creating jobs,” Rajoy said.

The move to cut business taxes got the blessing of the IMF this week after a routine visit, but the Fund warned that Spain also needs to cut a raft of exemptions on business taxes (the Financial Times noted that Spanish companies often have an effective tax rate of only 10%). The IMF also warned in its report  that there was little room to cut personal taxes, another of Rajoy’s ambitions. Spain has promised the EU to cut its budget deficit to 3% of gross domestic product by 2016, but the European Commission already forecasts it to rise to 6.1% next year from an expected 5.6% this year.