Obviously, if the starting point is a structural budget deficit, then the return to budget balance will require spending to grow more slowly than nominal growth or else a discretionary increase in revenues, until balance is achieved. Evidence suggests that the application of a rule of this type during the upswing prior to the last crisis would have substantially curbed the public spending permitted each year, allowing the generation of significant room for manoeuvre that would have limited the deterioration in public finances during the crisis. Finally, pressing ahead with the various pending reforms would raise the economy’s growth potential which – through its effects on employment and productivity – is one of the basic determinants of reductions in public debt. These reforms include, in the regulatory area, revision of regulations that hinder the market entry of new firms or that limit their growth; in the labour market, reforms to reduce the degree of duality and to improve the employment prospects for the long-term unemployed; and the need to increase the efficiency of the legal system and of the education system and to promote the accumulation of technological capital, among others. Accordingly, any delay in their implementation or, worse still, a hypothetical reversal of reforms already introduced since the start of the crisis, would significantly worsen the prospects for economic growth and would make the fiscal consolidation still needed more costly. Conclusions Let me conclude by recalling the challenges and risks for the economy as a whole raised by the current fiscal imbalance in Spain.
With regard to the composition of this adjustment, according to the Stability Programme the public deficit path projected for the period 2017-2020 will be achieved mainly through control of total primary public expenditure, i.e. without including public debt interest payments. Specifically, if the projections are fulfilled, the weight of primary public expenditure in GDP will be reduced by 3 pp over this period, to 36.6% in 2020. At the same time, government revenues are expected to grow moderately, by 0.9 pp of GDP over the programme’s horizon, to 2020. On the expenditure side, the Government projects moderate growth in its wage bill, basically reflecting the 1% rise in the remuneration of public-sector employees approved for 2017 and the impact of savings arising from reforms approved in previous years. At the same time, the Stability Programme assumes that the downward trend in spending on unemployment will continue, in line with favourable labour market developments; that the application of the adjustment factor to pensions will continue to hold down pension spending, in a positive inflation environment; and that current spending on goods and services will continue to be firmly controlled over the coming years. 5/8  As for public investment, the Stability Programme projects an increase in general government investment of 10% in 2017.