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ELECTION

What Spain’s new leftist government has planned for the country

Spain's new coalition government between Prime Minister Pedro Sanchez's Socialist party and hard-left Podemos wants to raise taxes for the rich, roll back a reform of labour market laws, and raise salaries.

What Spain's new leftist government has planned for the country
Pedro Sanchez, is congratulated by Spanish far-left Unidas Podemos coalition leader, Pablo Iglesias after the successful vote. Photo: AFP

The two parties argue the measures are needed to fight economic inequality but company lobby group CEOE has warned that their economic programme is “close to populism” and will have a “very negative” impact on job creation in the country, the eurozone's fourth-largest economy.

The following are some key measures proposed by Spain's new government:

Labour market reforms

The coalition has vowed to roll back some changes introduced by Spain's previous conservative government in 2012 during the height of the country's economic crisis to make the labour market more flexible by making it easier and less expensive to fire workers.   

It wants to eliminate or severely restrict the reform's more controversial measures such as the authorisation to fire workers on sick leave or unilaterally change a job contract.

Former Prime Minister Mariano Rajoy credited his labour market reform for a sharp drop in Spain's sky-high unemployment rate but critics say it has caused salaries to fall and led to a rise in unstable, temporary work.

Minimum wage hike

Sanchez's previous government rose the monthly minimum wage by 22 percent to €1,050 ($1,175).

His new coalition government wants to increase it further by the natural end of the legislature in 2024 to 60 percent of Spain's average monthly salary which currently stands at €1,970.

Pensions

Pensions will once again be linked to inflation, which has not been the case since 2014.

Higher taxes

The government wants to raise income taxes on those earning more than €130,000 per year, and set a minimum corporate tax rate of 15 percent, while banks and energy firms will have to pay 18 percent.   

The goal is to prevent companies from using tax deductions and loopholes from paying far less than the current official corporate tax rate of 25 percent.

Spain's largest union, CCOO, has said the government's overall programme is “positive” but criticised a “lack of ambition” regarding taxes, recalling that Spain's tax rates are lower than the European average.

Rental market

The coalition wants to give mayors of cities struggling with “abusive” rent hikes to temporarily impose rent ceilings.

Madrid and Barcelona have in recent years seen rents skyrocket, in part due to the rise in popularity of renting homes to tourists on home-sharing platforms such as Airbnb which has decreased the number of properties available for longer-term rental.   

The proposal has sparked an outcry from the real estate sector which argues it would discourage investment in properties built with the goal of being rented out, which would worsen the housing shortage.

Debt reduction

The coalition agreement between the two parties vows to “respect the mechanisms of budget discipline” without setting a specific target for the reduction of Spain's debt, which stands at nearly 100 percent of the country's
economic output.   

Last year the European Commission chided Spain for its slow pace of debt reduction.

Problems ahead

“While the formation of a government is certainly welcome news for the Spanish economy after months of political standstill, it does not change the overall picture of an increasingly fragmented and polarised political system,” warns Ángel Talavera, Eurozone economist at Oxford Economics.

“The implementation of reforms that require ample consensus remains unlikely, leaving a lot of unfinished business at a time when the economic outlook is deteriorating. And with the Catalan independence issue permeating all aspects of Spanish politics, the governing coalition’s dependence on the support of pro- independence parties makes it very unlikely that it will be able to last a full four-year term.”

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BUDGET

At last! Spain passes budget in boost for minority government

Spain's Senate is poised to approve Prime Minister Pedro Sanchez's budget for 2021 later Tuesday, boosting his minority Socialist-led government after years of political instability.

At last! Spain passes budget in boost for minority government
File image of a debate in Spain's parliament. Photo: AFP

Spain's Senate approved Prime Minister Pedro Sanchez's budget for 2021 on Tuesday, boosting his minority Socialist-led government after years of political instability.

The spending plan, which channels billions of euros in European Union pandemic recovery funds into the economy, was approved by the lower house on December 3 before receiving the Senate's backing.

Its passage increases the chances that Sanchez will hold on to power until the next general election set for 2023.
   It became the first budget to be approved since 2018.   

The rise of new parties such as far-left Podemos and market-friendly Ciudadanos has fractured parliament, making it difficult to pass legislation.    

This has led to a cycle of political instability that has taken Spain, the euro zone's fourth largest economy, to four elections between 2015 and 2019.    

“This is a very, very important stage because it allows Pedro Sanchez to gain time and stability,” said Oriol Bartomeus, a political scientist at the Autonomous University of Barcelona.

'Sanchez never admits defeat'

Sanchez came to power in June 2018 but was forced to call fresh elections early last year after Catalan separatist parties voted down his draft budget.   

The budget vote came on the heels of the start of a high-profile trial of Catalan separatist leaders over Catalonia's failed 2017 bid to break away from Spain.

“Sanchez has shown throughout his career that he never admits defeat,” said Paloma Roman, politics professor at Madrid's Complutense University.    

After two inconclusive general elections in 2019, Sanchez in January 2020 formed a minority coalition government with Podemos.   

He initially tried to win support for his 2021 budget from Ciudadanos.    

But after that failed, he controversially turned to several smaller regional nationalist parties, including Bildu, the heirs of the former political wing of armed Basque separatist group ETA.

Sanchez took office in 2018 with the backing of these parties, but the pact with Bildu sparked an outcry from the right and even criticism from within his Socialist party.

Given the make-up of parliament, “there was no other possible majority” to help pass the budget, said Bartomeus.

'Not be easy'

In exchange for the support of these parties for his budget, Sanchez agreed a series of measures, including a moratorium on evictions for poor families which cabinet is set to approve on Tuesday.

While approval of the budget ensures Sanchez's government will last, he still faces “years of permanent negotiations within his government and in parliament” to approve laws, said Cristina Monge, a political scientist at the University of Zaragoza.

The Socialists and Podemos, their junior coalition partners, are divided over many issues such as migration, the future of the monarchy and the need to raise the minimum wage.

Sanchez's ties with Catalan ally ERC also risk becoming more tense as Catalonia's regional elections on February 14 nears.   

“It will not be easy for the government to resist these tensions, but neither of the two (coalition partners) has any real interest in separating” and bringing down the government, said Bartomeus.

Monge said Podemos is falling in the polls and the Socialists do not have enough support to govern alone so the “price they would pay” if they split would be “too high”.

By AFP's Mathieu Gorse 

 

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