Spain: a budget for an ecological, feminist and socially just recovery?

By Dick Nichols

November 20, 2020 — Links International Journal of Socialist Renewal — The Spanish government of Spanish Socialist Workers Party (PSOE) prime minister Pedro Sánchez and Unidas Podemos (UP) second deputy prime minister Pablo Iglesias launched their 2021 draft budget with great fanfare on October 27. For the proud parents, their newborn fiscal package — the first since 2018 — will inaugurate “a new epoch that definitively leaves behind the phase of neoliberalism and cuts to the public sector” (Iglesias): it will also “mark a turning point in our economic model” (Sánchez).

Not that the birth was painless: up until the day before the draft budget was to go before cabinet UP was tweeting that it could not be adopted because they did not agree. UP only relented after stitching up late-night deals with the PSOE on relaxing conditions for access to the Minimum Living Wage and adopting a law to allow rent control by regional and local government.

The junior partner in the ruling coalition had previously added its signature to a petition supported by 9000 social and community organisations that called on the government to legislate a state-wide version of the Catalan law on housing affordability and rent control. After the successful negotiations, UP could present itself to the anti-eviction and renters’ movements as having won their battle within the government. Previously, UP had seen nearly all its proposals on taxation whittled away by the PSOE’s economic ministers.

When the budget was presented, it was clear that the Spain had never seen such an expansionary fiscal document. Promoted as “the most social budget in history” and as launching “a Spain that will be more ecological, more cohesive and more feminist”, it will, if adopted, increase public spending at all levels of government by a third (from €287.7 billion to €383.5 billion). 

The November 13 Spanish congress vote to reject the budget as a whole — and so continue with the 2018 budget of the former People’s Party (PP) government — was lost 150 to 198. Following negotiations and amendments the budget will now go to a final vote in December. 

Thirty-one of the 39 non-right nationalist and regionalist MPs whose vote, if united, can decide the fate of bills, decided against wholesale rejection of the draft, with eight in favour.

The vote for amending the bill in its totality came from the conservative People’s Party (PP), its regional satellites the Union of the People of Navarra (UP) and Forum Asturias, the ultra-right Vox and the Canary Coalition (CC). They were joined from completely different positions by Together for Catalonia (JxCat), the People’s Unity List (CUP) and the Galician Nationalist Bloc (BNG) 

The vote of the Catalan and Canary Islands forces thus split: the centre-left Republican Left of Catalonia (ERC), the conservative Catalan Democratic European Party (PDECat) and the PSOE-friendly New Canarias accepted the draft budget as a starting point. They were joined by the new right Citizens, the UP split-off More Country, the two Basque forces (the centre-right Basque Nationalist Party and the left-independentist EH Bildu) and the regionalist forces Commitment (Valencian Country), the Cantabrian Regionalist Party (PRC) and Teruel Exists (representing neglected southern Aragon).

The question for the parties from the “periphery” was whether it was better to accept the draft in the hope of negotiating a better deal, or to reject it as offering only a pittance and/or as irrelevant to the more fundamental issues of the right to national self-determination and the ongoing unjust imprisonment of the leaders of Catalonia’s 2017 independence referendum.

This conundrum sparked a sharp clash among the MPs from JxCat, ERC and PDECat, parties that share government in Catalonia. As for EH Bildu, it indicated that it might vote for the final budget as an initial step away from austerity, a first for any organisation from the tradition of abertzale (patriotic) left independentism.

Reasons for a budget

Three factors made the budget draft possible. The most important is the temporary suspension in the face of the COVID-19 economic crisis of the European Union’s Stability and Growth Pact (SGP), its chief weapon for forcing austerity on member states via public deficit and debt reduction targets (3% and 60% of GDP respectively). 

With growth plunging across Europe even the most debt-averse (“frugal”) governments, led by the Netherlands, have acquiesced in the inevitability of some countercyclical increase in public sector deficits: this was confirmed at the July EU Council meeting by their acceptance after prolonged haggling of the €750 billion “Next Generation EU” plan, despite its involving a bigger EU budget and breaking the taboo on the EU issuing debt. 

The EU’s finance ministers had already pledged in March to “act decisively to ensure that the [COVID] shock remains as short and as limited as possible and does not create permanent damage to our economies and therefore to the sustainability of public finances in the medium term.” By November 4, after eight months of Covid-19 crisis, the EU Commission was forecasting that average gross public sector debt across the EU would climb from its 2019 figure of 79.2% of Gross Domestic Product (GDP) to 93.9% by the end of 2020. 

In Spain, with tax revenues collapsing and spending on health and income support ballooning, this number jumped from 95.5% to 117.4% for the first seven months of 2020 alone. Total Spanish state debt emission for 2020 is forecast to quadruple the pre-COVID projection of €32.5 billion, reaching €130 billion by year’s end. 

Every spending boost that increases the Spanish public sector deficit by 1% of GDP injects around €11 billion extra into the economy: as a result the suspension of the EU’s constraints meant that 3.4 million workers and 1.5 million self-employed could be sheltered from unemployment at the height of the first wave of the pandemic. Despite this support, hundreds of thousands — especially many self-employed and those trying to survive in the “informal economy” — fell through the cracks of the underfunded and understaffed Spanish social welfare system.

But Spanish big capital did not miss out: the €10 billion Strategic Enterprise Solvency Support Fund (FASEE), set up in July, has been providing temporary support to non-financial enterprises “considered strategic for the national and regional productive fabric”.

The suspension of deficit and debt targets looks certain to continue over the course of 2021. As a result, the EU Commission’s latest forecast (November 5) has the Spanish deficit reaching 123.9% by 2022, while the Bank of Spain projects a figure of 129% for the same year if its worst case scenario of continuing COVID-19 outbreaks eventuates. If budget projections prove accurate the official unemployment rate by the end of 2020 will have increased by 3% (to 17.1%) instead of by the 8% that a repeat of the policies of “expansionary austerity” applied after the 2008 financial crash produced.

Not wasting a good crisis

The second factor shaping the budget is also EU-related: €26.6 billion (6.94%) of its expenditure comes as the first instalment in Spain’s €140 billion share of “Next Generation EU”. This program has three pillars: provision of emergency recovery finance, support to “boost private investment and support ailing companies” and “making the single market stronger and more resilient and accelerating the green and digital transitions”.

The scheme thus looks to use the COVID-19 and climate crises as an opportunity to glue the EU’s fractious members into a more coherent unit: the union will hopefully be better equipped to confront foreign economic rivals and also withstand internal challenges to its organisation as a club of states committed to “European values”.

In the Spanish budget, EU largesse will account for up to 21% of major items, like industrial and energy conversion directed at meeting the EU’s (very inadequate) 2050 carbon neutrality goal. The windfall EU monies are also earmarked for “strengthening territorial integrity”, code for weakening Catalonia’s movement for a Scottish-style independence referendum by meeting some longstanding Catalan grievances about infrastructure and public transport funding. Funding for Catalan infrastructure projects jumps 48% in the budget draft.

Thirdly, the leap in the deficit, although large, is projected to be short-lived, as tax receipts revive on the back of economic growth that is forecast to reach 9.8% for 2021. The budget anticipates an increase in the total government income of 14.7% because of this recovery, with gross public sector debt falling from 11.3% to 7.7% of GDP.

However, such happy projections at a time of unprecedented economic uncertainty and a second COVID-19 wave are already provoking scepticism from both the Bank of Spain and the Independent Authority for Fiscal Responsibility (AIREF). Actual outcomes will depend most of all on the impact of the second wave of the pandemic. For example, the Spanish state employment agency SEPE, which administers the short time (furlough) scheme for stood-down workers, had spent €10 billion extra up to June in support (around 0.9% of GDP): if, as is not excluded, containing the present second wave of COVID-19 requires a repeat of the first-wave lockdown, a similar jump in the deficit will be unavoidable.

Expenditure

Where will the extra billions in this budget go? 

The portfolios set to benefit most from the budget are those covering housing (367.9% funding increase), small business and tourism (159%), gender equality (157%), infrastructure, digitalisation and the transition to sustainable energy (103.9%), health (75.3%), education (70.2%), science (59.4%) and culture (24%). Support to workers stood down because of the COVID-19 pandemic is projected to increase by 20% and the budget for training and retraining by 29%.

The biggest absolute funding increase (€22.4 billion, 10.3%) goes to social expenditure. If the budget is passed, it will fund a 5% increase in the index used to determine the size of social welfare payments and a 0.9% increase in contributory pensions and public servant salaries.

Not that this last small figure pleased the public sector trade unions, who complained that the rise was insufficient and had not come through negotiation. According to Julio Lacuerda, secretary of the public service division of the General Union of Workers (UGT): “The 0.9% rise doesn’t recognise the work done in the context of the pandemic nor the loss of purchasing power.”

Those who are at the very bottom of the Spanish social heap—like the elderly trying to survive on a non-contributory pension of less than €400 a month or the dependent and disabled—will gain a little more. Two examples: funding for the Minimum Living Income will increase by 19.9% and reach 850,000 families—provided its administration becomes functional—while financing of the support system to dependent people will increase by 34.3% and enable a modest increase in payments to carers.

Other gains include:

• A €200 million fund to help gender equality by making carers available to help look after children under 14;
• An extra €515 million (32.7%) for scholarships and other forms of student support at all; levels of education (including €250 million earmarked for university scholarships);
• An increase in paternity leave from 12 to 16 weeks, and;
• A 59% increase in funds to attack child poverty. 

This last figure represents extra funding of only €60 million and is an example of a recurring feature of the budget draft: big percentage leaps in spending from a very low base inherited from previous People’s Party (PP) and PSOE governments. Paradoxically, these increases have highlighted how underfunded important areas of social support have been and how distant the goal of decent services remains in many areas. 

Three examples suffice to illustrate. First, on the day the budget was presented the association representing social service managers revealed that there were 234,000 people on the waiting list for disability and dependency services and another 147,000 waiting to be classified. In 2019, the Spanish state’s contribution to the overall dependency and disability budget had reached an all-time low, €1.39 billion (16.1%, with regional governments supplying the rest). The €600 million funding increase in this budget (taking the total to €2.35 billion) was regarded as welcome but still very inadequate. According to the Workers Commissions (CCOO) social services division, an extra €2.3 billion would be needed just to eliminate waiting lists.

Second, the budget allocates €78 million to the program aimed at stemming Spain’s alarming school drop-out rate. Overwhelmingly among poorer families, it has only got worse since the pandemic increased dependence on distance education. However, education experts cited by the media set the basic funding need of the program at €300 million.

Third is the crisis of public housing and the stratospheric rents that working people must pay in cities like Barcelona and Madrid. The draft budget announced a 367.9% (€1.78 billion) increase in spending on housing above the 2020 figure of €481 million, overwhelmingly due to the contribution from the EU (€1.65 billion). As part of the package the income threshold at which rent assistance cuts out has been raised from €600 to €900 a month.

That looks like a great leap forward and it is — compared to previous miserable efforts to provide the country with the EU’s lowest percentage of public housing with an adequate stock of affordable homes. But how adequate is it compared to need? According to a study by the consultancy Lobare, given the Spanish near-total absence of rent control, €136 billion would have to be spent on increasing housing supply enough to drive rents down to the EU average.

It is not that such a vast increase in expenditure is needed. If the PSOE keeps its promise to cede to local and regional administrations the power to control rents and force the leasing of Spain’s accumulation of empty housing, an important first step towards tackling the housing crisis will have been taken: it will prise the door open to forcing the banks and investment funds—those who have paid least for the crisis—to make some contribution. Nonetheless, a much bigger outlay on public housing is still needed.

This observation applies with even greater force with regard to the financing of industrial and energy conversion, infrastructure and what the EU calls “resilient ecosystems”. Starting from the already obsolete target of achieving climate neutrality by 2050, the transition to renewables will be entrusted to a bidding process dominated by the big Spanish energy companies: they stand to make massive profits from the job, given the €5.3 billion the budget devotes to the task.

Such an “ecological transition” looms as a caricature of the authentic approach to converting energy production to sustainability in today’s context of climate emergency. That can only be achieved by setting a greenhouse gas reduction target of 90% by 2030, planning the emission reduction needed per sector per year, setting a budget and mobilising the funds needed for the task, and entrusting implementation of the job to a publicly owned sustainable energy authority. This is especially the case in the Spanish state, given its long history of corruption and delayed completion of privately executed public works.

Revenue

In the Spanish case there are two main sources for adequately financing a real transition plan: firstly, by a war on the tax evasion of big capital, largely responsible for Spain’s tax take being 7% of GDP less than the EU average, and secondly by a financial transactions tax with few if any exemptions.

Yet it is on the revenue side that the 2021 budget looks most like a pale imitation of a Green New Deal. Some of the sub-titles of a revenue package for a green transition are there—increases in taxes on the super-wealthy and capital gains, Tobin and Google taxes—but with such feeble content that spokespeople for the “big end of town” breathed a sigh of relief when they heard the budget news: “We were expecting much worse.”

The main measures, some of them to be introduced in non-budget legislation, are:

• Reduction from 100% to 95% in the tax exemption on profits earned by the foreign affiliates of Spanish companies. Henceforward 1739 companies (0.12% of the total) will have to pay 25% tax on 5% of their profits made abroad.
• Increase of two percentage points in the tax rate on incomes over €300,000 a year. This represents a retreat by UP on its agreement for government with the PSOE, which envisaged an increase of two percentage points in the rate applying to incomes above €130,000 and four percentage points in that on incomes above €300,000. There are only 53,188 taxpayers with annual income above €200,000 in Spain. The tax on capital income like shareholdings will increase by three percentage points for amounts above €200,000 a year.
• An increase from 2.5% to 3.5% in the tax rate on fortunes of €10 million and above. The UP proposal for a specific tax on the superrich was discarded.
• A minimum tax rate of 15% on the earnings of real estate investment trusts.
• A Google tax that will apply to only 3% of online publicity operations or data sales of companies with a turnover of at least €750 million globally or €3 million in Spain.
• A Tobin tax of 0.2% that will apply only to the buying and selling of shares in Spanish companies with a market capitalisation of at least €1 billion. Transactions in financial derivatives are left untaxed.

In addition, the tax “reforms” of the 2011-2018 PP government, which handed an extra €8 billion to those with assets averaging €10 million, remain unreversed. 

Besides the EU’s contribution the chief source of extra revenue remains debt: in 2021 increased issuance will provide around €19 billion in funding as against €1.86 billion from budget revenue measures and €4.2 billion from measures such as taxes on non-recyclable plastic and waste (included in other legislation).

The temporary suspension of the SGP to enable counter-cyclical expenditure spared the PSOE-UP government difficult decisions about the Spanish elites paying any share of the recovery and spared it, too, from any serious conflict with the “Troika”—the European Commission, International Monetary Fund and European Central Bank—that forced capitulation on the Greek SYRIZA government in 2015.

It has also saved it from difficult decisions on the expenditure side: potential targets for cuts like the corrupt and parasitic royal household and the armed forces enjoy modestly increased funding from a government that calls itself the most progressive since the restoration of Spanish democracy.

How huge is huge?

The spending in the PSOE-UP draft budget is aimed at meeting two immense challenges: to hold economy and society together during a COVID-19 crisis which has damaged Spain most of the 27 European Union (EU) members states, and to revive important areas of accumulated funding neglect at the same time as the climate emergency exposes government to a new and unprecedented stress test. This raises the question as to whether a leap in planned expenditure that would be extraordinary in a “normal” recession is enough in a situation of pandemic, economic collapse, rapidly rising social misery and looming ecological disaster.

The sector worst hit by the economic crisis in Spain is tourism, as COVID-related travel restrictions and border closures have emptied cities that usually teem with foreign sightseers. The estimated loss in tourism income for 2020 ranges between €106 billion and €135 billion, representing at least half of the total fall in Gross Domestic Product (GDP) projected by the Bank of Spain, with job losses reaching as much as 750,000. 

One small indicator of the depth of the crisis was the scene in Catalonia on November 9-10 when 10,000 payments of €2000 that the Catalan government had made available to the self-employed were distributed over a special web site on a first come, first serve basis. The site collapsed under the pressure of the 400,000 applications it received: ten thousand (1.8%) of Catalonia’s 545,000 self-employed got a pittance and 98.2% got nothing.

The response of the Catalan government was to demand more financial support from Madrid. At the time of writing the response from the central government is still to come, but it wouldn’t be surprising if the PSOE-UP government in turn increased pressure on the EU to provide more than the €140 billion of funding being made available to Spain under “Next Generation EU”.

Given the collapse in economic activity and, in particular, private business investment across Europe, the question looms as to whether this plan—with its “huge” combination of €390 billion in grants and €360 billion in loans—is in any way adequate.

An analysis of this recovery fund by Miguel Carrión Álvarez of the thinktank Funcas Europe already pointed to its central shortcoming in July. The European Commission predicts private investment in the Eurozone alone to fall by 3% of GDP this year and not to bounce back in following years—that is at least €360 billion a year not being injected into the EU economy. At the same time, however, deficit-financed public investment is not projected to rise to offset this shortfall, especially if the suspension of the SGP ends sooner rather than later, as the “frugal” member states are already pressing for.

Álvarez’s conclusion is that the EU’s “huge” recovery plan falls short of need by “well over a trillion euros over this year and next, which is more than the size of the whole EU budget for a seven-year period”:

Such is the perspective in which the adequacy or otherwise of EU funding and member state budgets really need to be assessed. An additional factor that needs to be weighed, and which is not considered in Carrión Álvarez’s analysis, is the likely impact of expansionary policies that contribute to the COVID-generated the “debt tsunami”: how will it be paid off, and by whom?

The 2021 budget in Spanish politics

It is likely that the 2021 Spanish budget will be passed. Yet for politics in the Spanish state, almost as important as the “if” is the “how” — with the support of what majority will it pass? It is inconceivable that the 198-vote majority of the first reading will be repeated, given Citizens’ refusal to back a final budget supported by ERC and EH Bildu and its specific condition for giving support — the removal from a new education reform bill of acceptance of Catalan as language of instruction in Catalonia.

The final budget vote will be an occasion for three major struggles for political hegemony or survival. The first is the new-right (“moderate”) Citizens’ effort to preserve some political relevance by offering itself to Sánchez as the partner that would relieve him of dependence on the “separatists” and “terrorists”; the second is the contest between EH Bildu and the PNV over which orientation towards the PSOE-UP government best extracts concessions for Euskadi (the Spanish Basque Country) and advances the cause of Basque self-determination; the third, and most important, is the struggle for hegemony within Catalan independentism between ERC and JxCat in the run-up to Catalan elections set to take place on February 14.

In all three struggles the PSOE is playing from the position of strength given to it by the monies it commands in the budget and by the extra liquidity that will magically appear to meet any last-minute cost of acquiring votes. This ocean of cash will also be useful in bolstering the position of the PSOE’s regional affiliates against independentist forces in Galicia, Euskadi and Catalonia.

The PSOE’s line against those independentist forces that rejected the budget draft was given by treasurer María Jesús Montero in a reply to JxCat MP Laura Borràs in the first reading of the budget bill: it will probably be repeated as a set speech by candidates of the Party of Socialists of Catalonia (PSC, the PSOE’s Catalan affiliate) in the forthcoming Catalan poll.

Borras was also the target of this outburst by ERC spokesperson Gabriel Rufian, enraged with her insinuations that ERC’s vote in support of continuing the budget process was a betrayal of Catalonia:

MP Mireia Vehí justified the CUP vote for wholesale rejection of the budget, which she conceded was better than that of the PP, in these words:

In contrast, EH Bildu MP Oscar Matute gave this justification for not voting down the budget draft:

The reversal by EH Bildu of its traditional position of opposing Spanish state budgets and the government’s acceptance of negotiations with the Basque left-independentists were facilitated by UP. This development predictably set off a wave of “outrage” on the right and within the wing of the PSOE that Sánchez defeated in his return to party leadership in May 2017. At the same time, the PP has launched a campaign against the “discrimination” against Castilian (Spanish) that will supposedly take place in Catalonia under the new education law (which simply returns the situation to where it was before the Rajoy government).

PP leader Pablo Casado, calling on the PSOE regional leaders (“barons”) opposed to any normalising of EH Bildu and to revolt against Sánchez, said after the budget session:

It remains to be seen how much political mileage remains in noisy right-wing outrage about “separatists” and “terrorists” when what is at stake is Spain’s most expansionary budget to date.

United Left (IU) economic commentator Carlos Sánchez Mato described Spain’s 2021 budget draft as “just a start, but a good start”. For this representative of one of the parties in UP, the budget, despite many shortcomings, starts to address a decade of underfunding of social priorities. That seems undeniable.

The larger issue, however, is not the choice between this budget draft and yet again proroguing the PP’s 2018 accounts but how to defend and extend its progressive content when the “ecological, feminist and socially just recovery” it claims to launch begins to fade due to the PSOE’s visceral aversion to challenging the power, privilege and priorities of the Spanish and European elites.

Dick Nichols is the European correspondent of Links—International Journal of Socialist Renewal and Green Left Weekly, which has published an initial version of this article on its web site.