Spain pushes on with long-overdue reforms as EU deficit decision nears

The two reforms, which could still be months away from implementation, top a list of measures the European Commission wants Spain to implement to rein in its public finances and reform its economy.

The cabinet approved a bill on Friday on setting up the independent fiscal authority. The bill will now go to parliament. “This law introduces mechanisms to supervise and make transparent the fiscal policies of all public administrations,” Deputy Prime Minister Soraya Saenz de Santamaria said at a press conference following the weekly cabinet meeting.

The cabinet also set up a committee of economists and sociologists to make recommendations on reforming the pension system. Those revisions will be “a fundamental reform”, she said.

In late-April, Spanish authorities will send the European Commission an updated programme of reforms it is planning for the next three years as well as revised economic forecasts.

The EU executive will use the two documents to decide whether Spain can take one or two extra years, to 2015 or 2016, to reduce its fiscal gap to below the EU's targeted ceiling of 3 per cent of gross domestic product.

Spain cut its public deficit to 7 per cent of gross domestic product last year, missing its target of 6.3 per cent. It is targeting a deficit of 4.5 per cent this year.

The new fiscal authority's main task will be to analyse government spending and make public recommendations and reports. However, it will not be granted the power to enforce rules to control and correct any slippage.

Treasury Minister Cristobal Montoro said the new body would be independent, with a president appointed to a three-year term by the prime minister's cabinet and approved by parliament. It would be akin to the Office for Budget Responsibility in the UK or the Congressional Budget Office in the United States.

On pensions, the government recently passed a reform to restrict early retirement and is now pushing ahead with a wider revision of the system, which has become unsustainable due to demographic trends.

The number of people contributing to state pensions has fallen to its lowest level in a decade after more than 3 million Spaniards lost their jobs and stopped paying into the system.

Several Spanish officials told Reuters last year the new reform would likely lead to accelerating a planned increase in the retirement age and to restricting inflation-linking of pension payouts.