Organization of developed countries. This Wednesday the OECD published a comprehensive set of economic policy recommendations for Spain, aimed at strengthening public finances, boosting potential GDP growth, safeguarding the pension system, and improving labor market outcomes and youth employment.
The policy menu calls for several measures: a VAT increase yielding about 5 billion euros in net revenue, a total and swift rollback of anti-inflation measures adopted since mid-2021, and moderate yet steady growth in the interprofessional minimum wage (SMI) or an extension of the retirement age beyond 67, in line with the Social Security reform that has drawn scrutiny from the OECD. The organization also urges greater support for social safety nets, including expanding the availability of minimum vital income (IMV), while warning against rent caps in stressed urban areas that could dampen housing supply and access (Source: OECD report, 2024).
Pensions under surveillance
In its biennial Spain assessment, the OECD analyzes the pension reform implemented by the government and notes that despite measures to raise incomes and encourage later retirement, pension expenditures would rise under current trajectories. The OECD expects a larger increase in pensions tied to consumer prices, highlighting that gains for minimum and non-contributory pensions would significantly raise costs before gradually easing later in the 2040s (Source: OECD Spain Assessment, 2024). The group prefers policies that safeguard long-run sustainability, including extending the retirement age in line with life expectancy. During a Madrid press conference, Clare Lombardelli, the OECD’s chief economist, stated clearly that Spain should consider moving the legal retirement age beyond 67 (Source: OECD briefing, 2024). If current measures fall short, the OECD suggests widening the calculation period from 25 to at least 40 years and trimming the growth rate assumptions that feed pension benefits (Source: OECD briefing, 2024).
The OECD emphasizes that maintaining the system’s viability is best served by gradual, fiscally responsible changes. This includes aligning retirement age with rising longevity and setting forward-looking rules for pension indexation to preserve purchasing power over time (Source: OECD Spain Assessment, 2024).
5 billion euro VAT adjustment
The organization stresses the need for a coherent consolidation path that is sizeable and durable enough to keep debt on a downward track while creating space for aging-related spending and growth strategies. It also suggests reviewing anti-inflation measures and public savings in tandem with a 2024 spending review conducted by the Independent Fiscal Authority (Source: OECD report, 2024). The OECD specifically recommends phasing out significant VAT discounts on certain goods and services, with an estimated impact near 5 billion euros, and encouraging higher consumption taxes on green-related goods such as alcohol and tobacco to support emissions reductions (Source: OECD report, 2024). In contrast, it advises preserving targeted tax relief for low-income families and children and reducing wealth taxes in certain bands. The net effect of these proposed changes points to a roughly 6.8 billion euro net adjustment after all measures are tallied (Source: OECD report, 2024). Overall, indirect tax increases would accompany reductions in social contributions and capital taxes (Source: OECD report, 2024).
Minimum Interprofessional Wage
Following a cumulative 47% rise in the minimum wage from 2018 to 2023, including a 22% increase in 2019, the OECD notes that this expansion may be associated with higher unemployment risks, particularly among young people and women, and slower job creation in the near term (Source: OECD report, 2024). While the 2019 rise helped lift wage levels for some workers and reduced wage disparity, the OECD advises tempering further increases, especially for workers under 30 and non-nationals. It recommends future adjustments to the minimum wage be aligned with labor market conditions and productivity rather than achieving a fixed target of 60% of the average wage (Source: OECD report, 2024).
The Spain-focused economic analysis devotes significant attention to education, labor market reform, and housing prospects for young people. The OECD notes a youth unemployment rate around 27%, one of the highest among developed economies, and highlights the uneven quality of youth employment despite reforms. It also cautions that limiting rents in distressed areas could reduce housing supply and hinder access to rental housing (Source: OECD report, 2024).
2024 Growth Forecast Revisions
The OECD uses the report release to adjust its proximity-to-now forecasts, lifting the 2023 GDP growth projection to 2.5% from 2.3% but trimming 2024 growth from 1.9% to 1.5%, which sits below government projections for the following year (Source: OECD report, 2024). Still, the organization emphasizes resilience in the Spanish economy and labor market, noting that growth should remain supported by domestic demand and favorable trade dynamics, aided by the EU’s NextGeneration funds (Source: OECD report, 2024). It frames these developments as a pause rather than a setback, reflecting a cautious but optimistic view of Spain’s post-pandemic trajectory (Source: OECD report, 2024). The OECD expects a slower but steady expansion in 2024, underpinned by reforms and ongoing financial support measures at the European level (Source: OECD report, 2024).”
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