The report also said that efforts to curb the country’s budget deficit – which it predicts will hit 11 per cent this year – and improve the economy’s competitiveness need to be “broadened and deepened”.
In particular, the country needs far-reaching reform to address its 18 per cent unemployment rate – a rate higher than that of Ireland or Portugal: “Labour market reform is the cornerstone to rebalance the economy,” the report said.
In order to do so, the OECD suggests reforming the tax system to shift more of the burden onto consumption and property and away from employment. It also emphasises the need to de-regulate so as to make hiring people less onerous, including measures to reduce severance pay and make it easier for companies and employees to opt out of collective sector agreements.
In addition, the organisation said that water management and regulation requires urgent reform so that its cost reflects its scarcity.
But sweeping reform could prove difficult: Spain’s government is already struggling to maintain order after introducing a raft of measures to address its deficit, including an increase in VAT, income tax and a five per cent cut in public sector wages.
The country is still in a state of emergency imposed after a strike by air traffic controllers shut down the country earlier this month.