Spain's Rajoy offers job plans as growth improves

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MADRID (AP) - Prime Minister Mariano Rajoy revised upward 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.

Rajoy opened Parliament's annual state-of-the-nation debate saying 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.

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

Rajoy said Spain would begin to create jobs in 2014 but 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.

Rajoy said businesses offering new employees permanent contracts would have a flat monthly social security payment of 100 euros for the first two years but must keep that person employed for at least three years.

Opposition Socialist party leader Alfredo Perez Rubalcaba accused Rajoy of distorting reality with his rosier predictions, asking him: "What country do you live in?"

Rajoy's 26 months in power, he said, had eroded Spain's much-valued public health and education systems and left Spaniards with "fewer jobs, more debt and fewer loans."

(Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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