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Factbox - Spain's new economic reforms plan

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(Globalpost/GlobalPost)

MADRID (Reuters) - Spain's government on Friday announced a new plan for reforms it intends to pass by next year.

The plan treads a fine line between stimulating growth and austerity through tax reforms and increased efficiency after the European Union agreed to give Spain more leeway to cut its public deficit.

Prime Minister Mariano Rajoy also hopes the new strategy will help turn around the ailing Spanish economy in time to win re-election in 2015.

Here is a list of the main reforms announced on Friday:

FISCAL DISCIPLINE

Independent Fiscal Authority

The government aims to set up an independent fiscal authority, which would oversee public spending and the budget.

It will make recommendations and reports, but will not have the power to enforce rules and will report to the government, not the congress. The body is also considered key by Brussels.

The authority will be created some time in the fourth quarter.

Transparency Law

The transparency law will be set up by the end of the year and will assign public overseers for, amongst other things, economic management and fiscal consolidation, laid out in the Budget Stability Law.

Taxes

Among the few novelties to be announced on Friday, the government backtracked on its pledge to cancel in 2014 temporary tax hikes that were decided in 2012 to keep the deficit down. The income tax hikes will now be valid until 2015.

The government will introduce new green taxes and modify "special" taxes - which include taxes on gasoline, tobacco, alcohol, some electricity tariffs and some transport costs.

The reform programme mentions adjustments to the corporate tax base and taxes on bank debts, though gives no further details.

STREAMLINING PUBLIC ADMINISTRATIONS

The government has been talking of a complete overhaul of the public administrations to reduce costs caused by inefficiency and excess bureaucracy since it came to power.

The reform programme aims to weed out inefficient local government practices and what it calls redundant structures. The project, to be in place by the third quarter, will save the government some 8 billion euros (6.7 billion pounds) in 2014-2015.

With deep entrenchment at local government level, the public administration reform is considered one of the most complicated.

A report on the overhaul will be published before summer.

THE WELFARE STATE

Health Service

The programme aims to "improve the efficiency of health services by qualifying efficiency and necessity of services, digitalising patient histories and harmonising drug prices and doses with other European Union countries."

Pension Reforms

A work group, which has already been set up, will make a reform proposal before summer on the pension system.

The proposal, which the government aims to pass in to law in the third quarter, will enforce the so-called sustainability factor by harmonising pension contributions and pay outs and bringing pensions in line with life expectancy and demographics calculations.

Reform of the public pension system was a long-overdue pledge and one of the key demands by the European Commission as part of talks on extending the deficit target.

Parts of the reform have already been passed, including a law limiting early retirement, bringing the real pension age closer to the legal retirement age.

FINANCIAL SECTOR REFORM

The programme aims to improve the regulatory framework for the financial system, by clarifying the role of the savings banks and their foundations, which have virtually disappeared under the sector overhaul over the last three years and improving banking supervision.

Many banks could not cope with new requirements laid out under reforms by the current government and the Socialists before them, prompting Rajoy to seek a 100-billion-euro credit line from European partners.

Spain has so far used 41.5 billion euros to prop up lenders brought low by toxic real estate assets but many analysts believe the dire state of the economy and soaring defaults on loans to households and companies could end up requiring more money.

Credit

The programme lays out proposals to boost credit to small and medium sized businesses, including some 32 billion euros from state-run agencies and improved legal regulation on small debt instruments and retail access to fixed income markets.

LABOUR MARKET REFORM

One of the conservatives' most trumpeted measures, the labour market reform was aimed at reducing lay-off costs for struggling companies and making it easier to restrict collective wage negotiations.

The government said on Friday it would launch a review of the reform passed in spring of last year and would aim to delink public sector wages from inflation by the end of the year, a key step previously left out of reform proposals.

The government said it would start a training programme for young unemployed through a fund worth 3.5 billion euros to 2016 by the summer, in an attempt to address youth unemployment which soared to 57 percent in the first quarter.

The reform did not address the division between gold-plated contracts, which most older workers have, and the temporary contracts without benefits that most younger workers receive.

GROWTH AND COMPETITIVENESS

The government focused much of the reform plan on growth policies for companies which will include boosting credit to struggling small- and medium-sized companies and incentives to get young people back to work.

The measures included already announced changes to tax regimes, tax breaks on investment, improved access to fixed income markets for small businesses in need of credit and a revision of new instruments to boost internationalisation of Spanish companies.

Energy, Telecommunications, Transport Sectors

The energy reform called for immediate measures to close an accumulated 28 billion euro tariff deficit created in a regulated electricity system in which prices do not cover costs.

Several laws, including a power generation tax and cuts to renewable energy subsidies, have already been passed and other measures on prices and costs will be sent to parliament this summer.

For the telecommunications sector, the government outlined measures to improve competition and develop high-speed internet by the third quarter.

The plan also gives vague details of liberalisation of the railways, the airports and naval ports, though falls short of giving details.

(Reporting by Paul Day; editing by Ron Askew)

http://www.globalpost.com/dispatch/news/thomson-reuters/130426/factbox-spains-new-economic-reforms-plan