By: Sebastian Mariz, CEO of Influence Spain
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Pedro Sánchez has successfully negotiated the first hurdle towards the approval of next year’s national budget for the public administration, with his coalition partners the Basque Nationalist Party (PNV), ERC and Bildu. These three parties, and their 24 seats in Parliament, are crucial to the majority needed to get the budget approved. All agreed not to table amendments rejecting the draft budget, in the parliamentary session held at the end of the month. This does not mean that they will not table partial amendments to specific budget lines, but it does mean that a majority of members of parliament approve the overall budget and objectives proposed by the Prime Minister. The agreement also helps ensure that the ERC is able to rely on the Catalan socialists to get the regional Catalan budget approved this autumn, and that PNV is able to rely on the Basque socialists to get the regional Basque budget approved this autumn.
This budget proposed by the Prime Minister is based on macroeconomic growth, public deficit and public debt projections, which are already being challenged by the European Central Bank, the OECD and the G7. The European Central Bank is especially worried about the impact that a recession in Germany could have on Spain next year.
The ECB expects that all of the Eurozone will contract by 0.9% next year, with Germany shrinking by 0.4% and registering a 7% inflation rate. These figures are expected to be worse for Spain, and could have a marked impact on Spain’s relatively healthy employment figures (12% unemployment), by reducing the Government’s ability to create public sector jobs. Despite this, the Minister of Finance has responded to concerns raised by the financial sector regarding the Government’s proposed budget and macroeconomic projections by stating that both the budget and the Government’s pro-posed economic model for Spain in 2023, have the acceptance of international financial institutions and the international community.
Social dialogue difficulties
Amidst negotiations on the national budget, the Employment Minister, Yolanda Díaz, has hit a brick wall in the social dialogue negotiations on the new workers statute which she promised to adopt before the end of this legislature. The employers confederation has refused to respond to the Minister’s proposal on worker topics such as minimum wages for temporary intern workers and additional modification to the new workers statute adopted in 2012. This could include increasing worker redundancy payments when workers are laid off.
The employers confederation is especially upset with the Minister’s unilateral decisions on increasing the minimum wage and social security payments. Unions however support the Minister and her promises to totally overturn the Spanish employment law, and adapt it for the 21st century. This law would touch on labour related topics such as working from home and the algorithms used in the gig economy which didn’t exist in the 20th century. Failure to make progress on the adoption of this new statute could damage the Minister’s relation with the unions and her candidacy for the general elections in December 2023, under her own political party, Suma.
Polling contradictions
Although most of the private sociological institutes and polling companies continue to register a loss of voter support for Pedro Sanchez and an increase in support for the leader of the opposition, the State controlled national sociological institute, the CIS, has published its latest polls, giving the Prime Minister 32.7% of voter support vs. 28.7% for the leader of the Popular Party, Alberto Nuñez Feijoo. Despite these official polling numbers, many members of the socialist party express their concerns in private that the Prime Minister’s strategy of direct confrontation with the leader of the opposition, has had little impact on improving the PM’s popularity amongst voters. According to internal polls carried out for the party, if elections were held today, it would be hard for the socialist party to win even 100 seats in Parliament, which is far from the 120 seats it currently holds, and even further from the 176 seats needed to govern with a majority Government. Adoption of the national budget for 2023, and the promised increase in public spending on social welfare programmes may have a short term positive impact on the PM’s popularity and on voter support for the PM. However this could lose steam over the next year, especially if the Government fails to fulfill its promises and social welfare programmes fail to materialize due to bureaucratic hurdles, or inflation rises even further and an economic recession hits hard.
The situation is not much better for Unidas Podemos (UP) or for Sumar and its leader, Yolanda Diaz. The CIS poll puts UP, the junior partner in the coalition Government, in a comfortable third place with 12.7% of the votes and almost 4 points ahead of the 4thpolitical group, Vox, with 8.8% of voter support. UP however continues to register a stagnation of voter support, with percentages that have not changed significantly over the past few months. Despite being the second most valued member of the Government amongst voters, Yolanda Díaz, has lost value as a political leader, and her political party, Sumar trails far behind UP in voter support. These results probably reflect voter support for what she is doing as employment minister and for workers, but doubts as to her capacity to run a political and in the general elections in December 2023.
Mortgage intervention
Although inflation figures dropped slightly in September to 8.8% and were expected to continue to moderate over the month of October, the rise in prices continues to be one of the main concerns of both Spanish voters and the Government. In an attempt at reducing the burden on vulnerable households, UP has tabled a resolution in the national parliament calling on the Government to limit the rise in variable-rate mort-gages to 0.1%, in order to reduce the risk of people defaulting on their mortgage payments and repossessions from rising interest rates. In response, the Minister of Finance has called on banks to apply voluntary solutions to help vulnerable homeowners. Failure for them to do so, could result in the adoption of legislation protecting these homeowners.
In response, the Spanish banking associations have proposed modifying the voluntary code of good practice adopted in 2012 with the following supporting directives: signatory banks agree to extending the lifespan of a mortgage taken out by families earning less than €24,300/year; families whose mortgage instalments represent more than 40% of their gross monthly income; those who have seen their mortgage rates rise more than 30% due to rises in the euribor; those who have signed a mortgage contract as of 2012; the maximum extension of the lifespan of a mortgage is 40 years.
Some measures included in the voluntary code of conduct will be legalized through the adoption of a new Royal Decree, and agreed on, beforehand, with the Bank of Spain and the Ministry of Finance.
The Spanish central bank has reported that Spanish private banks have registered a marked decrease in demand for new mortgage loans in the third quarter of the year, and expect additional contractions in the last quarter of the year. The contractions registered in the third quarter are the largest since 2008. Similar contractions have also been registered in consumer credit and loans to small and medium sized companies.
Freeze on rental prices to be extended
The Government has also announced that it is considering the possibility of indefinitely extending the freeze on rental price increases and indexation to the national consumer price index, at least until the inflationary crisis has ended. The extension will probably be adopted and is directly linked to negotiations between the coalition partners on a new national housing law which would intervene in the rental market, in price distorted markets, and make it harder to evict tenants who fail to pay their rents or homeowners who default on their mortgage instalments.
Special taxes on windfall profits on energy utilities and banks
As part of its strategy to generate new sources of temporary financing to cover the increases in public spending announced in the new budget for next year, the Government has successfully tabled a draft law on the application of a temporary tax on windfall profits in the energy utilities sector and on extraordinary profits from higher loan interest rates in the banking sector.
When presenting the draft law in Parliament, the Fiscal Affairs Minister stated that the Government is open to modifying certain provisions of the text, so that it is more aligned with what the European Commission has proposed on a special tax on energy companies. In a radio interview, the Energy Minister also stated that any changes in the text will only be made following a technical analysis of the text by members of parliament and her team. This analysis, she added, will focus on whether the tax is simply applied to changes in revenue, or should take into account investments in regulated activities, or if the European Commission’s decision to tax profit should be applied. The opposition has responded saying that they will support both taxes, if the Government agrees to apply the European Commission’s criteria.
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