Spain - The Economy Role of Government

Economic Ministries

Under the Felipe Gonzalez government, the minister of economy, finance, and commerce served as "superminister" and chief government spokesman with the responsibility of advising the prime minister on economic and financial policies. The Ministry of Economy, Finance, and Commerce formulated general economic policies; prepared the budget; audited the state's accounts; supervised expenditures; managed the public debt; supervised the banks, insurance companies, and stock exchanges; and collected taxes. It therefore had a major role in the conduct of both fiscal and monetary policy. It was also responsible for all matters concerned with publicly owned properties involved in industrial, agricultural, and commercial ventures, including supervision of those under the day-to-day management of other ministries.

Other ministries having primarily economic functions included the Ministry of Agriculture, Fisheries, and Food; the Ministry of Transportation, Tourism, and Communications; the Ministry of Industry and Energy; the Ministry of Labor and Social Security; and the Ministry of Public Works and City Planning. There was also an interministerial Economic Affairs Committee (Comision de Asuntos Economicos), which consisted of the heads of economically important ministries and the undersecretary of state for the economy.

Budget and Fiscal Policy

The budget of the central government reflected only a part of the financial resources involved in the execution of fiscal policy. Other official receipts and expenditures, including social security revenues and payments, local and regional government taxation and spending, and the operations of autonomous organizations associated with defense, education, and agrarian development, brought the total amount of government outlays in 1987 to 13,200 billion pesetas, or 41 percent of GDP. Thus, despite the sharp rise in revenues recorded in 1987, the central government deficit narrowed only from 1,659 billion pesetas to 1,623 billion pesetas on a national accounts basis.

Government spending tended to be expansionary. Even in 1987, when government receipts were unusually high because of strong economic growth, a crackdown on tax fraud, and the introduction of a value-added tax in 1986, state expenditures outstripped state income and the government's deficit amounted to about 3.8 percent of 1987's GDP. When regional and local government expenditures were figured in, the total deficit amounted to approximately 5 percent. Budgetary estimates for 1988 indicated that the central government deficit could be held to approximately 3 percent of GDP. Initial budgets, however, have usually underestimated ultimate spending.

Role of government

The public sector of the postwar Spanish economy was not conspicuously large, compared with the corresponding sectors of most other West European countries. Much of it came into existence under the Franco regime. Spain's communication and transportation facilities were publicly operated, as was the case on most of the rest of the continent. State trading monopolies were maintained for petroleum products, tobacco, and some agricultural products, but most industry other than coal mining, iron and steel making, shipbuilding, and aircraft assembly, was privately owned. Most of the major financial institutions were also privately owned. Yet agriculture, which was largely in private hands, was affected by a panoply of subsidies and marketing controls. Irrigation projects and reforestation and land reform programs were also important official concerns.

The single largest component of the public sector was the National Industrial Institute (Instituto Nacional de Industria-- INI), a government holding company that was primarily, though not exclusively, involved in industry. In addition to INI, the public sector included the Grupo Patrimonio, founded in the late nineteenth century. Formally referred to as the Directorate General for State Assets (Direccion General del Patrimonio del Estado--DGPE), it functioned under the auspices of the Ministry of Economy, Finance, and Commerce. In the mid-1980s, there were about two dozen companies in the DGPE, operating in a variety of sectors, such as communications, finance, transportation, agriculture, and textiles. Three companies dominated the group: the National Telephone Company of Spain (Compania Telefonica Nacional de Espana--CTNE), the tobacco distributor (Tabacalera), and the Overseas Trade Bank (Banco Exterior de Espana). Together they accounted for the bulk of the employment and the financial holdings of the group's members. The shares of these companies were held directly by the state, rather than indirectly through a holding company, as was the case with INI. One of the main purposes of the DGPE was to channel to the government the revenues from the sale of certain commodities placed in the hands of monopoly distributors, though such monopolies were coming to an end as a result of Spain's entry into the EC. The DGPE had also taken an active role in restructuring the textile industry.

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