SPANISH EXPERIENCE ON REDIRECTING NATIONAL PUBLIC
BUDGETS
Ministry of Finance SpainPaper completed: January 20051. Introduction: A new pattern of growth for the Spanish economy anchored
on productivity through a reorientation of public expenditures
In recent years, productivity in Spain has contributed less to our economic growth than has employment.
Between 1996 and 2003, productivity grew just by 0.7%, compared with an average of 1.7% in the
previous fifteen years. While employment creation explains 78% of economic growth during the last
eight years, productivity has contributed only 22%.
The Spanish pattern of growth has been characterised by being very labour intensive in recent years and
has undoubtedly conditioned our productivity behaviour. The main factor behind these developments has
been a buoyant internal demand fuelled by a structural reduction of long term real interest rates
associated with our incorporation to the EMU. This increase in demand has primarily concentrated on the
labour intensive sectors of the economy, in particular the construction sector and other services.
In response to this strong demand, and helped also by a more flexible labour market, Spain has created
employment at an average annual growth rate of 2.7% since 1996. This has made possible a substantial
reduction of the Spanish still relatively high unemployment rate
The new government is convinced that a more balanced pattern is necessary for a sustained growth and
has therefore decided to reorient its economic policy towards improving productivity: in the medium and
long term, productivity growth will have a positive impact on job creation and will reinforce our
potential growth and competitiveness.
In this context, actions in the following areas will be implemented: greater competition in markets for
goods and services; improvements in the regulatory framework; further reforms in the factors markets -
with actions in both the financial and labour markets- and progress in terms of technological investment,
development and innovation, with increased public spending on infrastructure and education.
This paper focuses only on the budgetary aspects of this Spanish new pattern of growth. It is structured in
four sections: Spanish medium term strategy; Political priorities on public expenditures; Ways to achieve
these priorities, and Main results obtained until now.