During the 1960s, the Spanish economy expanded at the fastest rate of any Western European country. GNP increased in real terms by more than 7 percent annually and per capita income increased from $290 to $900 per year. Gross domestic investment in fixed assets more than doubled in volume and the share of manufacturing industries in total investment rose steadily from 23 to 32% between 1958 and 1969. By 1969, new investment in manufacturing totalled $2 billion, compared to 465 billion in 1958. At the beginning of the 1970s, Spain was thus well along in the process of transformation from an agrarian, less-developed economy to a more dynamic and industrialized society. The first two national development plans (1964-67 and 1968-71) successfully sought to increase domestic savings, the importation of foreign capital and the export of industrial products. Implementation of the plans was facilitated by (a) government ownership of a large network of basic industries (b) seven specialized government-owned banks; (c) use of government expenditures and tax collections to support selected sectors of the economy; (d) control over the allocation of credit; and (e) a "cheap money" policy. Special incentives in the form of low cost credits from official credit institutions, tax exemptions and subsidies were provided to "growth centers" (less developed regions of the country selected for industrial or agricultural development and to "concerted action programs" (industrial branches in which mergers, nationalization and modernization of facilities were especially encouraged.) The Third Plan (1972-75) sought essentially to consolidate and extend the economic progress already achieved. It intended to maintain a 6.5 to 7% rate of growth in production, a 5.5-6.0% rate of growth in per capita income and a 9.7% rate of growth for fixed capital formation. With a view to entering the European Common Market, the Plan stressed improved international competitiveness and further consolidation of smaller enterprises into larger units, largely within the framework of "concerted action" programs. A better balance of Spain's internal and external finances, and more attention to domestic social, regional and environmental problems were the principal other emphases. By the end of 1973, the Plan was ahead of schedule, insofar as the overall growth of the economy was concerned. GNP had grown at a rate of almost 8% during the first two plan years. However, in 1973 Spain experienced its worst rate of inflation since 1947, with the cost of living rising by 14% and wholesale prices by 9.5%. A 24% annual rate of increase in money supply and a 30% rate of increase in private bank credit during 1972 and 1973 were fueling the rise in prices. Wage increases in 1973 were at the rate of 19% on the average. To restrain the inflation, the government restricted bank credit, increased interest rates, froze real wages and extended price controls. While tax collections in the United States and Western Europe generally absorb 20-30%, the Spanish system only diverts about 12% from private to public use. Excluding Social Security payments, Spanish tax revenues in 1971 were the equivalent of $4.4 billion. Corporate income tax accounts for a relatively small percent of GNP, (1.5 to 1.8%) and the corporate tax rate of 33% is well below that of other industrialized countries. Not only are personal income tax |