September 24, 2020

“Raising taxes now is bad for recovery”




Doctor in Economic and Business Sciences and former president of the National Institute of Statistics (INE) from 2011 to 2018, Gregorio Izquierdo (Madrid, 1969) has been the director of the Institute of Economic Studies (IEE) for a few months. In a telephone conversation, he defends that the 140,000 million in loans and transfers of the Reconstruction Plan should be used in justified and future projects for the Spanish economy.

—How do you rate the EPA for the second quarter?

—This EPA is not comparable to any other, so it must be interpreted with great caution, but not without concern. Initially, the drop in hours worked, of the order of 22%, faithfully anticipates, once productivity is adjusted, the order of historical deterioration of the GDP that we have experienced, which is much more significant than the adjustment of only 5.4% in employment. A particularly worrying fact is that only 13.9 million people actually worked in this quarter of the 18.6 million employed, with which 4.7 million people continue to be considered statistically as employed, even though they have not worked because they are in ERTE or partial stoppages. In addition, 1.6 million unemployed people have been considered inactive because they were unable to seek employment in the confinement. These two exceptional circumstances are transitory, and can therefore lead to a significant increase in unemployment in the coming quarters.

Q: Could the outbreak increase and the quarantine approved by the United Kingdom frustrate the third quarter recovery?

–One of the keys to a crisis is its communication. In this, to try to value the management of some over others, fear has been sinned at times, which does not benefit anyone, but inevitably leads to mistrust. In any case, it is negative news that is not justified by the lower relative contagions currently existing in Spain against the United Kingdom and that we should try to reverse as soon as possible, since this quarantine is an unwarranted alarm about Spain as a destination, which is going to cause a significant retraction of inflows of foreign tourists, with the consequent negative impact on activity and employment.

– Should the Recovery Fund be used to compensate affected sectors or incentivize innovators?

–We can meet both needs. We must spur innovative sectors, with greater capacity for growth and drag, but also help the most disadvantaged sectors such as tourism. It does not have to be exclusive. In fact, priority investments aimed at ecological transition and digitization must reach all sectors, as they are necessary to improve the competitiveness and resilience of all types of companies. What is crucial is that investments with the greatest positive impact on growth capacity and business activity and employment in the future be prioritized.

–Is there scope for temporary VAT reductions in particularly affected sectors such as hospitality?

–The Government could currently study a temporary reduction in VAT in certain sectors, as other countries such as Germany or the United Kingdom have done. It would be a measure that would partially alleviate some of the sectors most affected by the crisis. Of course, raising a tax increase, especially on companies or savings, would be especially harmful for recovery and activity. If we want more public revenue the only way is prioritize recovery and the fight against the shadow economySince, as we have estimated in the IEE, trying to converge in public income without doing it first in income could destroy in the medium term up to ten points of GDP and of the order of two million jobs.

–How can the labor duality between fixed and temporary be reduced, as the European Commission has asked us?

–Duality is a minor problem alongside our high unemployment rate, which is also a priority for the European Commission. The current labor framework has shown strong advantages in relation to the one that it replaced so it is not prudent to reverse it, and less in the midst of a crisis. On the one hand, the sensitivity of employment to growth in the expansion period increased. On the other hand, it is facilitating more efficiently the maintenance of employment in this recession, as it introduced as a novelty in Spain that our companies could use the same internal flexibility and adaptation mechanisms that were common in most of Europe. If this crisis has taught us anything, it is that the recipes of the past, especially those that never worked well, can hardly be the solutions for the future in a much more adverse and difficult reality.

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