The Organisation for Economic Cooperation and Development (OECD) has in its latest report said that Spain is coming out of its recession slowly, but needs to do more to accelerate growth.
The organisation said more government spending cut is required along with labour reforms.
Employees retirement age should be increased and pension reforms should be undertaken.
Corroborating the OECD report, Labour Minister Valeriano Gomez said the government proposes to do just that.
Spain is struggling with soaring debt and there is speculation that the country may be forced to seek assistance from other EU member countries. Spain will be following the Irish Republic, which was forced to seek assistance last month and Greece – which got a bailout package at the beginning of the year.
The Spanish government has been insisting that it will not require any bailout package. However, analysts are not convinced and fear that Portugal and Spain may be the next in the line.
The OECD report suggests that the Spanish economy should return to growth next year and expects it to expand by 0.9%. In 2012, the economy should grow by 1.8%.
The report further predicts unemployment rate to drop to 19.1% next year and to 17.4% in 2012, from the current 20% – highest in the EU region.
Acknowledging the Spanish government efforts of “substantial fiscal consolidation” and lauding it for taking steps “to address long-standing shortcomings in the labour market “, it observed that efforts should be “broadened and deepened”.
The country “must now enact major reforms to improve government finances and create jobs”, the report said.
Emphasizing on pension reforms, it said retirement age should be increased and disincentives should be introduced to discourage early retirement.
Acknowledging that there is a convergence of thoughts, Mr. Gomez said “The best way to extend the length of working life is to push back the age of retirement to 67. Those who wish to retire at 65 can do so, but in this case they must accept a reduction in their pension”.
The Finance Minister also said that pension amount calculation – presently based on last 15 years of salary, will be increased. In an effort to reduce the governments burden; previous years salaries – when they tend to be lower, will also be considered.
Commenting on the country’s budget deficit, it said the government “should also consider switching the tax burden from labour to consumption and property taxes”.
Noting that high severance pay of permanent contract employees is a barrier to the country’s job growth, it said it needs to be reduced ‘substantially’.
However, it corroborated the governments forecast that budget deficit for 2010 will be 9.2%, 6.3% in 2011 and 4.4% in 2012.
The Spanish government can still manage to raise money from international markets, albeit at a much higher rate than before the EU crisis began.