By: Sebastian Mariz, Managing Director of Influence Spain
National Budget approved
For the third consecutive time and the last time for this legislature, Pedro Sánchez has managed to convince a majority of the members of Parliament, 187 to be exact, to support his coalition Government and his proposed budget for next year. The same members of parliament who allowed him to form a Government three years ago, rubber stamped, one more year of a socialist/communist coalition which has had many ups and downs and which has rarely seen eye to eye on key policy initiatives and debates. Sánchez has managed to convince his parliamentary coalition partners to support him for another year, by making the usual budgetary concessions to his coalition partners, with the largest budget allocations going to the regional governments in the Basque Country, Catalonia and the Canary Islands, covering areas such as tax collection and public transport infrastructure.
The budget, the most expansive in Spanish democratic history and with a spending cap of 198 billion euros, with 266 billion euros for social welfare programmes, the largest budget allocation to welfare yet, is based on optimistic projections regarding economic growth, public debt and public deficit for next year. Sánchez’ fiscal affairs and finance ministers expect Spain’s economy to grow 2.1% next year, well above the expected contractions in other large European economies, such as Germany and Italy. His ministers also hope to reduce Spain´s public deficit from 5% to 3.9% and the public debt from 115% to 112%. They are relying heavily on extraordinary growth of 6% in fiscal income to fuel the increase in spending and the decrease in debt and deficit. This increase, in fiscal income is expected to arise from healthy internal consumer demand and private investment, and from the three new extraordinary and temporary taxes on the banking sector, utilities, and those with larger fortunes, which enter into force at the beginning of next year.
Men in Black
The European Commission has approved the national budget for next year and the projections it is based on, although it has warned the Spanish Government that its economic growth projections are too optimistic and that more public spending should be directed at households and small to medium sized businesses, which are more vulnerable to high energy costs due to the war in the Ukraine. These stimulus programmes, that target a reduction in demand and greater energy efficiency, should be removed, according to the European Commission, when tensions on the international energy markets end.
The Commission has also begun to timidly touch on issues regarding Spain’s high public deficit and debt ratios, as well as its elevated household and company debt ratios, but nevertheless has refrained from recommending any concrete measures be taken, to tackle these issues. The Commission is not expected to begin addressing these structural problems until next year or even in 2024, when the effects of the pandemic on Europe’s economies has been effectively absorbed. When it does, it will also address proposals made by Spain and the Netherlands on modernizing European Union fiscal policies. These proposals aim to give EU Member States greater flexibility in public spending, but with stricter rules on where and how to spend. The idea is to eliminate embarrassing and unmanageable inspections from the “men in black” and fines from the European Commission on Member States which break the rules, while setting out common rules on a joint EU fiscal regime, which allows for greater investment in the environmental, energy and social transition.
2023 legislative agenda
With the budget negotiations wrapped up, the PM can now focus on the last 12 months of his legislature and more importantly on the regional and municipal elections of May 2023 and the Spanish Presidency of the European Council of Ministers from the 1st of July to the 31st of December 2022.
Unwilling to expose himself and his Cabinet to criticism and to parliamentary opposition which can damage his reputation prior to the elections, Pedro Sánchez has instructed his Cabinet to refrain from adopting any further legislative initiatives in what remains of the legislature. Instead, he wants to focus on adopting measures linked to rural and municipal development, the energy transition and social justice, all financed through the EU Reconstruction and Resilience Funds.
During the second half of the year, the focus will then turn to the Spanish Presidency of the EU Council of Ministers, the Prime Minister´s international projection and his leadership of the International Socialists. More than a dozen international trips are planned for next year, to meet with the leaders of several countries in Africa, Latin America, China, India and other European countries. In addition to seeking consensus with other leaders on the energy transition, social justice and a new world economic model, Pedro Sánchez also hopes to convince the German SPD to rejoin the International Socialists and to help reconstruct the French socialist party and the ‘Movement for Change’ in Greece.
The PM’s weakest flank over the course of next year, will be the moves made by his junior partner in the coalition on three legislative initiatives considered a top priority for Unidas Podemos and ones which they will likely use to challenge the PM and position themselves as the champion of freedom of speech, social justice, and the LGTBQ+ community. These three pieces of pending legislation are; the new Housing Law, with measures to intervene in the housing and rental markets to guarantee housing rights for the most vulnerable; the law on transexual and LGTBQ+ rights; and the Law on the Protection and Safety of Citizens, which regulates the right to strike and to protest.
The battle for the far-left
While Unidas Podemos challenges Pedro Sánchez on leadership of left-wing and progressive policies, it will also have to contend with confrontation within its own ranks, union leaders and the split with the Employment Minister, Yolanda Díaz, and her newly created Sumar political platform.
The leader of Unidas Podemos, Pablo Iglesias, has warned Yolanda that she will not be included on the party list for the general elections, if she insists on running as Sumar, and that her political platform is little more than a branch of Unidas Podemos, and only complements the Unidas Podemos party programme. Yolanda has openly criticized Pablo Iglesias for making these statements and has publicly confirmed that her intention is to run as the candidate for Sumar, converting the platform into a political party, and separating themselves from Unidas Podemos. Spain’s traditional workers communist party, Izquierda Unida, will also run independently in the municipal and regional elections of May 2023, and has also severed its ties with Unidas Podemos and its leader, Pablo Iglesias.
This high level of confrontation between Spain´s far-left leaders, is both a cause of concern and a blessing in disguise for the PM and his socialist party.
It is of concern to the PM, because the confrontation can hurt voter support for the far-left and the results it achieves in both upcoming elections. A poor result for Unidas Podemos, and the far-left in general, reduces the PM’s chances of holding on to several regional governments after the regional and municipal elections of May, and of forming a new coalition following the general elections at the end of the year. Regions, at risk, include the Balearic Islands, the Canary Islands and Valencia. Losing these regions would likely damage the PM’s reputation in the eyes of voters and his image as leader of the country.
The high level of confrontation is a blessing in disguise, because it allows the PM to strengthen his own position as Spain’s leader of the left, while projecting an image of stability and statesmanship before citizens, business and union leaders. The PM’s preference, in any case, is for a strong outcome for Yolanda Díaz, who he gets along well with, and with whom he would prefer to form a new coalition government.
If elections were held today
The PM’s success in ratifying his third budget, and in successfully cooling inflation by intervening in the energy market, and in reducing unemployment, coupled with questions over Feijóo’s leadership of the conservative popular party, have somewhat helped bolster the PM’s popularity and voter support in the latest polls.
According to the state-owned national sociological institute, the CIS, if regional and municipal elections were held today, the socialist party would obtain 32.8% of the votes vs. 26.8% for the popular party, retaining power in key regions and municipalities across the country. At a national level, and if general elections were held today, the socialist party would obtain 32.9% of the votes, the popular party 29.5%, Unidas Podemos 11.5% and the far-right, Vox, 9.3%. Nevertheless, according to the CIS, Feijóo remains, slightly ahead of Pedro Sánchez, as the preferred leader amongst voters.
Private polls carried out by different editorial groups, are less favorable to the PM, and like the CIS, continue to show Feijóo as the favorite amongst voters. According to these polls, if general elections were held today, the popular party would obtain 29.3% of the votes and 121 seats in Parliament, the socialists 26.6% of the votes and 109 seats, Vox 14.2% of the votes and 41 seats, and Unidas Podemos 8.9% and 19 seats. The other splintering of small regionalist parties, including the Catalan ERC party and the Basque PNV and Bildu parties, and the Unidas Podemos spin-off, Mas País, would obtain 27 seats between the three of them. If these results were confirmed in twelve months-time, the PM would have a hard time forming a new coalition government, whereas the right would only be six seats away from a right-wing coalition majority government.