• The prices of public services will stop rising automatically depending on the CPI
  • The Law will contribute to maintaining the purchasing power of citizens

The Council of Ministers approved today the Draft Law on the Deindexation of the Spanish Economy, for its referral to the Courts, as provided for in the National Reform Program. The ultimate goal is to contribute from the public sector to price stability and to improve competitiveness by eliminating the practice of automatic price increases based on the CPI. Uploads must be justified exclusively by the increase in service costs.

In a context of price stability and belonging to the single currency, automatic indexing results in loss of competitiveness, with an impact on growth and employment. The Bill provides for the creation of a framework, mandatory for the Administration and indicative for the private sector, that promotes price stability. Collective wage bargaining (both in the private sector and for public sector labor personnel), pensions and financial instruments are excluded from the scope.

The general rule for the public sector will be that indexations cannot be made. Price increases must be justified exclusively by the evolution of the service costs. This breaks the inertia of automatic price rises, regardless of costs, and avoids the so-called second round effects (price increases for certain products that directly impact others without any relationship to each other).

In the private sphere, the updates will be subject to the free will of the parties and if there is no explicit agreement, the update will not be carried out. If the agreement between the parties does not specify the reference index, the update index proposed in this Law, the Competitiveness Guarantee Index (IGC) will be used. The variation of the IGC will be equal to inflation in the euro zone minus a corrective factor that will allow to recover lost competitiveness. It will have a ceiling of 2% (inflation objective of the ECB in the medium term) and a floor of 0%.

The Law will contribute to maintaining the purchasing power of citizens. The basic public services covered by the standard represent approximately 7% of the family budget of the Spaniards (about 36,000 million euros per year). A moderate evolution of the prices of these services reinforces the purchasing power of Spanish families, especially if their income has been in some way disconnected from the evolution of the CPI.

The Government has already provided, by amendment introduced in the Budget Law, a transitional regime until the Law is approved by the Courts. Thus, for contracts and parcels of the public sector, the revision of prices based on a general index is prohibited. The reviews will be carried out on specific indices that reflect the evolution of the costs. In addition, the Project has eliminated the retroactivity initially planned for certain contracts.

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