The Spanish business community has been denouncing for some time, with growing concern, the interventionist drift of the coalition government in economic matters: housing, taxation, energy… Last October, the Círculo de Empresarios denounced the continuous “interference” of the Executive in the institutions companies and even in the governance of the companies themselves, giving as an example the controversial takeover of Indra by the Government.
A survey carried out at the time by the think tank highlighted that eight out of ten businessmen consider “the deterioration of legal certainty, regulatory instability and the lack of quality of regulations” in our country. Against this background, the Institute of Economic Studies (IEE) yesterday published the 2022 Index of Economic Freedom, which shows that Spain continues to lose positions in the ranking of economic openness, entering more and more in the caboose among the countries developed.
Specifically, according to this index, which is the adaptation that the IEE makes for Spain of the indicator that the Heritage Foundation has been preparing since 1995, our country ranks 41st out of a total of 184 countries analyzed this year, two positions below the classification of 2021 (39) and “clearly behind most developed countries”. If only the 38 countries that make up the OECD are taken as a reference, Spain’s position invites even less optimism. In fact, it occupies the 29th position (there are only nine countries with less economic freedom), worsening three positions compared to last year’s ranking (26th position), while in what refers to the freedom of enterprise, it is located in the 32nd place out of that total of 38.
In other words, economic freedom in Spain is increasingly limping, with a score that is 6.2% below the OECD average and 5.9% below the EU-27 average. Called the club of rich countries, our country is light years ahead of economies such as Switzerland and Ireland, which lead the ranking, while barely surpassing the economic freedom indices of countries such as Israel or Hungary.
These data show “a worse evolution of economic freedom in Spain than in the average of the developed economies and the EU”, underlines the IEE. The causes? To begin with, the “greatest deterioration in fiscal health, with high levels of public debt and deficit.” And this despite the fact that our country has higher taxes, with a maximum personal income tax of 47% compared to the 39.5% that is applied in the rest of the OECD, or a Company tax with a reference rate of 25% compared to 22% of the rest of developed economies. On the other side of the scale, the weight of public spending amounts to 45.3% of GDP in Spain compared to 41.9% of the OECD average.
These imbalances are not the only ingredient in an increasingly poisoned cocktail for the international image of the Spanish economy. “A certain worsening of the variables of good governance” also influences. In this sense, the IEE recalls that, according to The Economist index, Spain has ceased to belong to the category of full democracy to mutate into a “democracy with defects”.
Added to this is political fragmentation or corruption, “while still presenting problems of overload and slowness in the judicial system, which also suffers from growing political interference.” In this context, the low position registered by Spain regarding the protection of private property is particularly alarming: position 27 out of 38, slightly above the OECD average but below countries such as New Zealand, Latvia or Lithuania. , while economies like Israel or Slovakia are on its heels. To this is added a judicial system that, due to its slowness in resolving disputes, does not leave Spain well, which in this section occupies position 31 of 38, another “worrying result”, warns the IEE.
But although Spain’s “bad position” in the international ranking of economic freedom “is conditioned by the behavior of variables that are influenced by policies that are implemented nationally, such as the tax burden, public spending and health fiscal”, its membership of the EU acts as a firewall in other respects. Thus, Spain occupies fifth place in the classification in the field of monetary stability; the fifth also in the commercial opening to the exterior, and the ninth in investment ease. That is to say, “the variables where Spain achieves the best classifications are those that are mainly determined by our membership of the European institutions”.
In this scenario, the IEE believes that one of the great pending challenges in Spain is to move towards market unity, putting an end to the strong fragmentation of the internal market, where there are as many different regulations as there are autonomies, creating a bureaucratic skein as dense and complex as onerous. The IEE estimates that reducing this regulatory tangle would boost long-term GDP growth between 1.5 and 3 points.
