The Spanish government of Spanish Socialist Workers' Party (PSOE) Prime Minister Pedro Sánchez and Unidas Podemos (UP) Second Deputy Prime Minister Pablo Iglesias launched its 2021 draft budget to great fanfare on October 27.
The proud parents’ newborn fiscal package will inaugurate “a new epoch that definitively leaves behind the phase of neo-liberalism and cuts to the public sector” (Iglesias): it will also “mark a turning point in our economic model” (Sánchez).
There is no question that the budget, promoted as launching “a Spain that will be more ecological, more cohesive and more feminist”, is unprecedentedly expansionary: total public spending is projected to rise by a third in 2021 (from €287.7 billion to €383.5 billion).
The portfolios set to benefit most are 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 for workers stood down because of the pandemic will rise by 20% and the budget for training and retraining by 29%.
Three factors have made the spending surge 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.
With growth plunging across Europe, even the most debt-averse governments, led by the Netherlands, have resigned themselves to some increase in public sector deficits: this was confirmed by their acceptance in May of the €750 billion “Next Generation EU” plan, involving a bigger EU budget and an end to the taboo on the EU issuing debt.
Differences from 2008
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.”
By November 4, 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% of GDP for the first seven months of 2020 alone.
Every spending boost that increases the Spanish public sector deficit by 1% of GDP injects about €11 billion extra into the economy: 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, hundreds of thousands — especially the self-employed and those trying to survive in the “informal economy” — fell through the cracks of the underfunded and understaffed social welfare system.
But Spanish big capital did not miss out: the €10 billion Strategic Enterprise Solvency Support Fund, set up in July, has been providing temporary support to non-financial enterprises “considered strategic for the national and regional productive fabric”.
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 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 its foreign economic rivals and also withstand internal challenges to its structure as a “club of states”.
In this 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 referendum, by meeting some longstanding Catalan grievances about infrastructure and public transport funding.
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 projected at 9.8% for 2021.
The budget foresees an increase in the total government income of 14.7%, helping the gross public sector deficit to fall 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 — not just from the host of right-wing commentators looking for any flaw in PSOE-UP accounts, but from the Bank of Spain and the Independent Authority for Fiscal Responsibility.
Spending
Where will the extra billions in this budget go? The biggest 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.
Those who are at the very bottom of Spanish society — like the elderly trying to survive on a non-contributory pension of less than €400 a month and the dependent and disabled — will also gain a little.
Two examples: funding for the Minimum Living Income will rise by 19.9% and reach 850,000 families (provided its administration becomes functional) and financing of the support system to dependent people will rise by 34.3% and enable a modest increase in payments to carers.
Other advances include extending paternity leave from 12 to 16 weeks and a 59% increase in funds to attack child poverty.
Starting from behind
However, this last figure corresponds to an actual increase of only €60 million and is an example of a noteworthy feature of the budget draft. These are big percentage leaps in spending from the very low base inherited from previous People’s Party (PP) and PSOE governments, as the PSOE-UP government plays catch-up in neglected areas.
An example is the crisis of public housing and the stratospheric rents working people must pay in major cities like Barcelona and Madrid. The draft budget announces an enormous 367.9% (€1.78 billion) rise in spending on housing on the 2020 figure of €481 million, overwhelmingly sourced from the EU (€1.65 billion).
That looks like a great leap forward and it is compared to previous token efforts to provide an adequate stock of affordable homes in this country with the lowest percentage of public housing in the EU.
But how adequate is this greatly boosted budget compared to need? According to a study by the consultancy Lobare, €136 billion would have to be spent on increasing market housing supply to force rent as a proportion of income down to the EU average.
But it is not that such a vast increase in expenditure is needed. If the PSOE were to summon the courage to implement its promise to cede to local councils the power to control rents and force the leasing of empty housing belonging to banks and investment funds, it would be an important step towards solving the housing crisis.
Nonetheless, a much bigger outlay than that in the 2021 budget would still be needed.
This argument applies with even greater force to spending on industrial and energy conversion, research and development, infrastructure for sustainability and what the EU calls “resilient ecosystems”: these outlays total €34.2 billion, double the figure for 2020.
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, that stand to make massive profits from the exercise.
Such an “ecological transition” looms as a caricature of an authentic approach to converting energy production to sustainability. 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 and entrusting implementation of the work to a publicly-owned sustainable energy authority.
Financing
There are two main ways that a real transition plan could be financed in the Spanish case: 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 most resembles a shadow 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.”
For example, tax on fortunes over €10 million rise from 2.5% to 3.5% and capital income over €200,000 a year and labour income over €300,000 loses some exemptions, but the tax “reforms” of the 2011–2018 PP government, which handed those with assets averaging €10 million an extra €8 billion, remain unreversed.
As for the Tobin tax, it exempts nearly all the most speculative financial “instruments” and affects only 3% of turnover.
The suspension of the SGP has saved the PSOE-UP government from difficult decisions about asking the elites to pay their share: in 2021 increased issuance of Spanish debt will provide about €19 billion in funding as against €1.86 billion from budget revenue measures and €4.2 billion from measures included in other legislation.
It is true that this expansive 2021 budget could well extend the honeymoon period of the PSOE-UP government: but what will be its fate when its “ecological, feminist and socially just recovery” starts running out of steam because of the government’s reluctance to tackle the power and privilege of the Spanish and European elites?
[Dick Nichols is the European correspondent for Green Left and Links—International Journal of Socialist Renewal. A more detailed version of this article will soon appear on its web site.]