Spanish leader pledges tax reforms, job creation incentives as he raises growth forecast

Prime Minister Mariano Rajoy revised up Spain's economic growth forecasts Tuesday as he announced tax cuts and job creation incentives to give the country a boost after punishing years of recession.

Addressing a parliamentary state-of-the-nation debate, Rajoy said Spain had turned the corner thanks to his conservative government's reforms and sacrifices made by Spaniards.

"Spain was a drag on Europe, now it is part of the driving engine," said Rajoy, who took office in late 2011.

He raised the forecast for economic growth this year to 1 percent from 0.7 percent previously and for 2015 to 1.5 percent from 1.2 percent.

Rajoy said that while Spain would begin to create jobs in 2014, he would not be satisfied until the 26 percent unemployment rate is reduced substantially. The rate is the second-highest in the 28-nation European Union.

Spain's economy began to crumble in 2008 with the collapse of its bloated real-estate sector. It emerged from a two-year recession late last year as investor confidence returned and the country's borrowing costs dropped from perilously high levels in 2012 to pre-crisis rates this year.

Without giving many details, Rajoy said an income tax reform to be presented in June would lower rates for 12 million of Spain's 17 million tax payers. He said income tax would be scrapped for people earning less than 12,000 euros ($16,500) a year.

Hoping to encourage companies to hire people permanently, Rajoy said businesses taking on new employees would have a flat monthly social security payment of 100 euros for such contracts for the first two years but must keep that person employed for at least three years.