On 28 April, the people of Spain will go to the polls. Less than ten months after the first successful no confidence motion in Spanish democratic history, Pedro Sánchez’s socialist government has fallen after Catalan parties and the opposition rejected its 2019 budget. And yet it was the support of those same Catalan separatists that enabled the socialist leader to overthrow Mariano Rajoy’s government when, following the verdict in the Gürtel case, he managed to win the 176 votes needed to secure a majority. Pedro Sánchez, who has served the shortest term of any prime minister in Spanish democratic history, has racked up a number of firsts. He was the first President of the Government of Spain to arrive at the Palace of Moncloa after a no confidence motion, the first leader of the opposition with no seat in Congress and the first candidate to stand for nomination without having won an election. This unprecedented climate of political tension will form the backdrop to the upcoming parliamentary elections, the first stage in an electoral marathon that will end with European elections, autonomous elections and local elections on 26 May.
The old left/right divide resurfaces over taxation
While preliminary campaigning had crystallised around the Catalan crisis, the various parties used the launch of the election campaign on 12 April to highlight their economic programmes. The 110 proposals put forward by the Spanish Socialist Workers Party (PSOE) are in line with the 2019 budget, some of the measures of which were passed by Royal Decree during the “Social Fridays” (lengthening of paternal leave; reform covering the long-term unemployed). The Socialist Party is currently focusing its message on fair taxes and reducing inequality, with the priority on increasing spending (minimum income, inflation-linked pensions and backpedalling on the 2012 labour reform) financed by new receipts (a tax on financial transactions and ICT companies, together with more progressive personal income tax and higher taxes for foreign multinationals). The far left Podemos party has raised the stakes by proposing a more progressive personal income tax, the introduction of a wealth tax and the closing of tax loopholes for entities holding foreign shares and open-end investment schemes.
The right has gone the opposite way, campaigning for lower taxes on households and businesses. In what he calls a fiscal revolution, Pablo Casado of the People’s Party is proposing to lower the marginal tax rate for the highest personal income tax bracket, make the working retired tax-exempt, lower corporate income tax and scrap inheritance tax. Liberal party Ciudadanos (Citizens) is taking a more measured approach, advocating for a lesser reduction in the progressiveness of personal income tax, while far right party Vox is more aggressive in its promises, notably concerning a two-tier flat tax.
Balancing the public finances: a forgotten necessity
Apart from taxation, another recurring theme likely to punctuate the election campaign is pensions. With the exception of Vox, which proposes moving towards a mixed system (funded and unfunded), all parties agree that the pension system should be left as it is. The People’s Party has not ruled out the PSOE’s suggestion of inflation-linked pensions. With the viability of the allocation system not guaranteed, a number of bodies have sounded the alarm about the risk represented by these short-termist measures. Public spending on pensions accounts for around 11% of GDP, two percentage points above the OECD average. The Independent Authority for Fiscal Responsibility (AIReF) believes that, given the rate at which the population is ageing, if cost-saving steps are not taken, the pensions shortfall could cause public debt to veer off course and reach 132% of GDP by 2050. The issue of public finances is not confined to the viability of the pensions system. Spain is the last European Union country to still be subject to the excessive deficit procedure. Its structural deficit remains high, estimated at 3.1% by the European Commission, and the 2019 public deficit of 2.1% will be well above the target laid down in Spain’s stability programme. Against this backdrop, campaign promises to increase spending and lower compulsory levies look hard to meet, especially with signals of an economic slowdown on the increase. While economic growth admittedly continues to outpace the European average, Spain is not immune to the deceleration affecting the rest of the region.
The risk of a divided house
With the election only a week away, considerable uncertainty remains. Pedro Sánchez’s party is leading the opinion polls with 30% of the intended vote, followed by The People’s Party with 19-21%. Next comes Ciudadanos, which has not been able to stem its fall but still garners 15% of the intended vote, with Unidos Podemos and Vox bringing up the rear at 14.3% and 9.5% respectively.
If Pedro Sánchez’s score is confirmed, the Socialist Party will have to reach a compromise with other groups to secure a majority of 176 seats. In that case, he will have two options. He could look to his left wing, though a coalition with Unidos Podemos risks leaving him short of a majority and would force him to rely on regional parties. Alternatively, he could look to the centre. A coalition with Ciudadanos, after the fashion of the aborted compromise of 2016, would secure a majority of seats. This scenario remains the most likely in spite of protestations to the contrary by Albert Rivera, leader of Ciudadanos, who for the time being is ruling out any alliance with Pedro Sánchez. The decline of the People’s Party makes the scenario of a majority made up of the three right-wing parties less likely, since such a coalition would only secure 152 seats. However, there remain two great unknowns. Firstly, the timing of the election, which comes at the end of Holy Week, could result in a high level of abstentions. Secondly, over 42% of people surveyed said they had yet to reach a final decision. In light of these figures, the risk of no majority emerging remains very real. At this stage, only one thing remains certain: all scenarios are possible.
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