Spain was the country with the lowest underlying inflation in the entire European Union in the month of June. This is reflected in the European CPI published this Wednesday by the Eurostat community statistical office. This indicator is the one that best reflects the extent to which inflation is spread throughout the economy and to which the European Central Bank (ECB) pays the most attention when deciding on interest rates.

Core inflation measured using European criteria —the indicator that excludes energy, food, alcohol and tobacco prices from the calculation— stood at 3.7% in Spain last month, one tenth below May. A figure lower than the average for the euro area (5.5%) and less than in the large European economies. This indicator rises to 4.4% in France, 4.9% in Italy or 6.9% in Germany.

In any case, it should be remembered that the definition of core inflation applied by the ECB is somewhat different from the one prepared by the INE month by month.. In the case of the Spanish statistical office, the underlying indicator also includes the price of food, which causes its rate to be higher (5.9% in June) than if measured using European rules.

The main core of prices in Spain is still above the 2% target set by the ECB and is slowly declining. However, the fact that this indicator is the lowest in the entire EU reflects that inflation expectations remain more controlled than in other countries. And this is not a trivial matter.

When companies and consumers assume that prices in their environment will continue to rise uncontrollably, they can end up making decisions that end up aggravating the problem.. For example, if a company believes that the CPI will rise 5% in 2023, it may decide to raise its selling prices accordingly.. The fact that this happens in a single company does not have to be relevant, but when it happens on a macro scale, the decisions end up affecting prices.

Second country with less inflation

Beyond core inflation, in June Spain revalidated its position as the country with the second lowest overall inflation in the entire EU. The general index of price increases stood at 1.6% year-on-year —the same figure as Belgium— a record that is only lower in Luxembourg (1%) within the Twenty-seven. The records of Spain are far from those of the great economies of the Old Continent. Thus, inflation in the euro area rose to 5.5% last month, while in France it stood at 5.4%, in Italy at 6.7% and in Germany at 6.8%.

Spain is also the fifth EU country in which food has become less expensive in the last year. Only Portugal, Denmark, Finland and Ireland posted better records. Food inflation stood at 10.3% last month, three and a half points below the euro area average and, again, below the figures for Italy (11%), Germany (13.8%) or France (14.3%).

Inflation in the euro area has been falling since October last year. In said month, a maximum of 10.6% was reached, which has been practically reduced by half. The main driver of this decline is energy prices, which in year-on-year terms have fallen in most EU countries.

The relief in inflation is being especially pronounced in the countries where the price of energy goods has fallen the most. Thus, in Spain this section of the CPI registered an interannual reduction of 25% last month compared to the fall of 6% at the euro area level. A decrease that is partly due to the base effect due to the strong increases that occurred in July of last year, but that has a lot to do with the Iberian mechanism to lower electricity prices that came into effect in June of last year.

This can be seen very clearly if we compare the trend followed by these prices compared to the European averages. In Spain, energy prices began to slow down clearly in September and entered negative territory in December, while in the euro countries as a whole this slowdown has been milder and declines did not start to be seen until last May.

The Government has spent three years in a row boasting of having launched the largest public employment offer in history. In 2021 the Executive took 30,445 places out to the competition. In 2022 there were 34,151 and last Tuesday it approved 39,574 for 2023, in the middle of the campaign for an election from which the Government will have to implement that offer of public employment. However, these calls and those that have been launched by autonomous communities and town halls in the last decade have not been able to compensate for the losses of personnel that have occurred since 2012. The reality is that Spain today has 213,935 civil servants less than a decade ago.

This is reflected in the statistics of public employees prepared every six months by the Ministry of Finance and Public Function. In July of last year —the latest available statistics— there were 1,457,311 civil servants registered in Spain, 13% less than a decade ago. In addition, the number of civil servants has been reduced at all levels of the administration. In the last decade, the State has lost 34,000, the autonomous communities 74,000 and local entities about 31,000.

Retirements and the low rate of replacement of positions that remain vacant are the main factors that explain the significant decline that the Spanish civil service has experienced in recent years. The aging of the workforce is perceived with particular clarity in the General State Administration (AGE), the department in which the staff of the ministries, autonomous bodies, state agencies and others are included.. In this section of the administration, 63.5% of public employees —including labor and civil servants with a position— are over 50 years old and will retire over the next 15 years.

In addition, the departures that have occurred in recent years have not been offset by new additions. With the arrival of Mariano Rajoy to the presidency of the Government in 2011, a zero replacement policy was introduced: AGE retirements were not replaced with new positions for four years, only those of the armed forces, National Police and Civil Guard were covered.

Those were times when the austerity imposed by Brussels forced the Executive to reduce public spending to reduce the deficit and this formula was chosen to avoid cutting wages further.. Starting in 2016, some pensions were restored (100% in priority sectors), but the general replacement rate did not reach 100% again until 2021.

The decline in the number of civil servants has meant that the central State now has fewer public employees at its service than ten years ago, while the autonomous communities and local entities have gained personnel. The central administration —including the armed forces, National Police, Civil Guard and Justice Administration— now has 64,443 fewer employees than in 2012. However, the autonomies and local administrations —where the civil service has less weight in the templates to the detriment of labor personnel and other contracts— have gained 117,851 and 64,443 more workers, respectively.

This reduction in public sector staff is having visible consequences in some services. A clear example is Social Security, where the insufficiency of personnel to serve the public is manifest.. In 2012, 29,909 public employees worked for Social Security, of which only 23,692 remained last year (20% less). And in this time the workload of the entity has multiplied. Social Security now manages two million more pensions and has been entrusted with new benefits such as the Minimum Vital Income.

Madrid, leader in state public employment

At the regional level, most of the state public employment is concentrated in the Community of Madrid. Something that is not surprising if one takes into account that the bulk of the central administration is located in the capital of the country.. In the Community of Madrid there are 37 public employees of the State for every 1,000 inhabitants, a proportion that triples the average of 11 employees at the national level.

In contrast, the regions in which the state public sector has less weight are Catalonia (3.4 employees per 1,000 inhabitants), the Basque Country (4.3) and Navarra (6.3).. A fact that has a lot to do with the fact that these territories are the ones that have the most transferred powers.

However, if we analyze public employment as a whole, also taking into account workers in regional and local administration, the picture changes.. Thus, Extremadura, with 86 public employees per 1,000 inhabitants, is the autonomous region of Spain with the highest rate of public employment over the population. They are followed by Aragon (75), Castilla y León (69.5), Castilla-La Mancha (64), Navarra (63), Asturias (62), Canarias (61), Madrid (60), Murcia (59.5), Cantabria (59), Andalusia (58) and Galicia (58), all of them above the national average (57.6). Among the territories with fewer public employees per inhabitant are La Rioja (57), the Basque Country (55), the Balearic Islands (52), the Valencian Community (51) and Catalonia (44).

The Treasury has decided to raise the compensation granted by the State to citizens who use their personal vehicle to work after having them frozen for 18 years and less than a week before the elections. Starting this Monday, employees who pull their car, van, motorcycle…. personnel to work will be entitled to compensation of 26 cents per kilometer traveled (10.6 in the case of motorcycles), 37% more than what they could receive up to now.

The department headed by María Jesús Montero has approved two ministerial orders this Monday in which it develops the measure, which affects both public employees and private professionals, although the regulatory formula that applies to each one is different. The increase in compensation for mileage is practically equivalent to the increase in the CPI registered between 2022 and 2005, the last year in which its amount had been updated.

From the Ministry of Finance they have justified the decision in the sharp increase in the price of raw materials that has occurred after the Russian invasion of Ukraine. In particular, they mention the significant rise in the price of fuel, which now costs twice as much as 18 years ago, when the amount in force until Monday was set.

In addition, the department of Montero hides behind the fact that this measure was already foreseen in the Government's plans for a long time. In the anti-war decree approved in December of last year, an authorization was included so that the minister could execute the measure by means of a ministerial order. And it was also reflected in the Framework Agreement for a 21st Century Administration signed with the unions in November of last year.

However, although this measure is already planned at the end of 2022, the Executive has decided to wait for the electoral campaign to apply it. A movement similar to the one that occurred last week with the approval of the public employment offer for 2023, the largest in the history of public administrations, with almost 40,000 new jobs.

Who can benefit?

Compensation for mileage expenses for those who use their personal vehicle for work have been operating in Spain since the end of the last century. Those 26 cents per kilometer of compensation reflect the cost of fuel, wear, breakdowns, insurance, taxes…. suffered by the worker's vehicle for its work use.

Potential beneficiaries are all workers who use their personal vehicle to work. In this sense, it is important to point out that trips from the place of residence to the workplace are excluded.

Compensation works differently for public employees than for private ones. In the first case, the State pays the compensation amount directly to the worker, once he has presented the refueling invoice and a statement justifying the displacement and its veracity has been verified.

In the case of the private sector, the compensation is applied via personal income tax in the form of an exemption. It is also necessary to justify the displacement in a document and it can include toll and parking costs. Asked by 20minutos, the Ministry of Finance indicates that it does not have an estimate of how many people benefit from this compensation or the cost that it entails for public coffers as it is an exemption in personal income tax, they point out.

The OECD maintains that the profits obtained by companies in the last year leave room to raise wages more, especially for workers who are paid less. This is clear from the annual report on employment published by the institution on Monday, in which the group's experts describe how the labor market has behaved in terms of employment, unemployment, wages in the last year and its future prospects.

The report finds that corporate profits have grown above the remuneration of employees in most countries. This happened in 33 of the 38 OECD countries (including Spain) between the fourth quarter of 2019 and the first of this year, according to the researchers.. This expansion of benefits has been particularly noticeable in the energy sector, but also in hotels, accommodation and manufacturing.

Thus earnings “have made an unusually large contribution to domestic price pressures”. Companies have been able to increase profits thanks to the unusual circumstances that have arisen after the pandemic. The reopening after the covid and the effect of the recovery plans that many countries have applied triggered demand.

At the same time, prices grew rapidly due to external factors (higher prices of energy and raw materials). This allowed many producers “to be able to adjust prices quickly, while wage increases tend to take longer negotiation periods,” says the OECD.. All this suggests that the costs of the crisis “have not been distributed equally among all”.

The report sees no indication that a wage spiral is taking place. A perverse economic phenomenon that occurs when salaries rise rapidly and force companies to raise sales prices, which, in turn, motivates new wage demands. The OECD is clear in this regard. “The evidence suggests there is room for benefits to absorb additional wage increases, at least for low-wage workers”. All this, “without generating significant pressure on prices or causing a drop in the demand for labor.”

The OECD conclusions are added to what other organizations such as the European Central Bank (ECB) have recently defended.. The ECB found in a recently published report that unit earnings have grown strongly in recent quarters and have made a visible contribution to eurozone inflation.

Wages resist better in Spain

The panorama of generalized loss of purchasing power that the OECD portrays has been somewhat more benign with Spain. The data compiled by the researchers indicate that Spanish wages have been among the least devalued in the EU. Specifically, Spain is the fourth country of the community club where the difference between wage increases and price increases has been most reduced.

The loss of purchasing power of Spanish wage earners is 1.2%, three times lower than the OECD average. In the EU, only Belgium, the Netherlands and Greece suffered lower purchasing power losses than Spain. And among the large European economies, such as France (1.8%), Germany (3.3%) or Italy (7.3%), the loss of purchasing power was much more pronounced.

Part of this resistance to inflation is the result of the significant increases in the interprofessional minimum wage (SMI) undertaken in recent years. In Spain it is among the OECD countries where the SMI has grown the fastest. To the extent that the minimum wage has retained its purchasing power better than the median wage. In this regard, the OECD points out that the Spanish labor market “has shown itself to be resilient” with an increase in employment of 1.2% in the first quarter and the lowest unemployment rate in decades (12.7%).

The OECD maintains that the labor reform has contributed to improving the quality of employment in Spain, but shows some doubts with the hiring of discontinuous permanent. In this sense, they point out that the effectiveness of the permanent discontinuous contract to improve the job security of workers is still uncertain.. Therefore, they recommend continued monitoring and potentially stricter regulation to ensure further progress.

The unions with the greatest representation in Spain (UGT and CC OO) have presented this Thursday a document with dozens of proposals to implement during the next legislature. A text with thirteen thematic blocks in which requests are collected such as reducing the working day to 32 hours a week, raising severance pay, propping up the SMI or maintaining and developing the labor reform and the pension system.

“The measures that the government agreed with the unions and business organizations during the pandemic, as well as all the agreements reached in this legislature, have promoted important and inalienable advances in social and labor rights and have contributed to recovering, in 2023, the GDP levels prior to the pandemic”, reads the text signed by the UGT and CC OO.

The main nucleus of the proposals that the unions put forward to the next Government are labor measures. UGT and CC OO propose a comprehensive reform of the Workers' Statute that includes a “gradual” reduction of the working day up to 32 hours without loss of salary. It is also proposed to reform the dismissal regulations. The idea is to redefine causes and procedures —especially in the case of EREs— and raise the compensation for unfair dismissal.

In labor matters, the document is also committed to continuing to develop the labor reform, strengthening public employment policies and implementing the statute of the intern. A regulation that did not see the light of day due to lack of support within the Government despite the fact that the unions had closed the text with the Ministry of Labor. It is also proposed to recognize care as work and address this issue through a comprehensive pact.

UGT and CC OO are committed to reinforcing public spending in sections such as health, education, housing, social protection, care or dependency and reinforcing social services. To cover these policies, the unions propose to raise taxes and thus equate the fiscal pressure of Spain to that of the most advanced countries in Europe.. Specifically, they propose harmonizing taxes on wealth, setting a minimum tax of 15% in Companies or equating the rates that apply to the general base and that of savings in personal income tax. In income tax, they also suggest raising rates for the wealthiest taxpayers.

In terms of housing, the trade unions are betting that the State allocate at least 1% of GDP to invest in developing public housing for affordable rentals. In this sense, they propose to maintain the Housing Law and deploy it throughout the territory. In the same way, the unions are committed to facilitating changes from variable to fixed rate mortgages and extending the life of the loans to alleviate the fees paid by families.

Pensions and SMI

With regard to pensions, the UGT and CC OO demand that the pension reform be respected, in particular its automatic revaluation according to the CPI. They also demand that partial retirement continue to be developed and that the changes made in this matter be consulted in the social dialogue. In this sense, they ask the Government to leave the polls to develop the contribution of the scholarship holders (included in the pension reform), which the Executive decided to postpone until 2024.

Regarding the minimum wage, the union centrals demand that it be guaranteed that the SMI remains at 60% of the average wage. A measure that is included in the electoral program of the PSOE, while Sumar bets that this income gains purchasing power every year. In terms of social policies, the UGT and CC OO also ask to recover the purchasing power lost by the Iprem (an indicator on which a large part of the minimum income and social aid that exist in Spain depend) and that the Minimum Vital Income be extended.

The Official State Gazette (BOE) published on July 17 establishes a deflation of withholdings in the Personal Income Tax (IRPF) of exempt mileage in locomotion expenses that correspond to justified trips. According to the General Provision published by the Ministry of Finance and Public Function, the text “reviews the amount of allowances and allowances for locomotion expenses in Personal Income Tax”, something for which the Ministry has power.

According to the provisions, the tax on these trips goes from €0.19/km to €0.26/km. But what exactly does this mean? Which has benefits?

You can deduct taxes for going to work by car

This increase in the exempt amount per kilometer has been set as compensation for mileage expenses for all those users who use their vehicle to develop their work or to travel to it. Hence, certain expenses are not taxed in order to compensate the worker in personal income tax for expenses necessary to work but that are at his expense.

That is why a part of the salary is not taxed as per diems (among which transportation enters), as explained by the tax advisor Carles Ribera on Twitter