The Spanish government of Spanish Socialist Workers' Party (PSOE) Prime Minister Pedro S谩nchez and Unidas Podemos (UP) Second Deputy Prime Minister Pablo Iglesias launched its 2021 draft budget to great fanfare on October 27.
The proud parents鈥 newborn fiscal package will inaugurate 鈥渁 new epoch that definitively leaves behind the phase of neo-liberalism and cuts to the public sector鈥 (Iglesias): it will also 鈥渕ark a turning point in our economic model鈥 (S谩nchez).
There is no question that the budget, promoted as launching 鈥渁 Spain that will be more ecological, more cohesive and more feminist鈥, is unprecedentedly expansionary: total public spending is projected to rise by a third in 2021 (from 鈧287.7 billion to 鈧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鈥檚 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 鈧750 billion 鈥淣ext Generation EU鈥 plan, involving a bigger EU budget and an end to the taboo on the EU issuing debt.
Differences from 2008
The EU鈥檚 finance ministers had already pledged in March to 鈥渁ct decisively to ensure that the [COVID] shock remains as short and as limited as possible and does not create permanent damage to our economies.鈥
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 鈧11 billion extra into the economy: the suspension of the EU鈥檚 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 鈥 especially the self-employed and those trying to survive in the 鈥渋nformal economy鈥 鈥 fell through the cracks of the underfunded and understaffed social welfare system.
But Spanish big capital did not miss out: the 鈧10 billion Strategic Enterprise Solvency Support Fund, set up in July, has been providing temporary support to non-financial enterprises 鈥渃onsidered strategic for the national and regional productive fabric鈥.
Not wasting a good crisis
The second factor shaping the budget is also EU-related: 鈧26.6 billion (6.94%) of its expenditure comes as the first instalment in Spain鈥檚 鈧140 billion share of 鈥淣ext Generation EU鈥.
This program has three pillars: provision of emergency recovery finance, support to 鈥渂oost private investment and support ailing companies鈥 and 鈥渕aking the single market stronger and more resilient and accelerating the green and digital transitions鈥.
The scheme looks to use the COVID-19 and climate crises as an opportunity to glue the EU鈥檚 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 鈥渃lub of states鈥.
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鈥檚 (very inadequate) 2050 carbon neutrality goal.
The windfall EU monies are also earmarked for 鈥渟trengthening territorial integrity鈥, code for weakening Catalonia鈥檚 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 鈥 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 (鈧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 鈥 like the elderly trying to survive on a non-contributory pension of less than 鈧400 a month and the dependent and disabled 鈥 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 鈧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鈥檚 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% (鈧1.78 billion) rise in spending on housing on the 2020 figure of 鈧481 million, overwhelmingly sourced from the EU (鈧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, 鈧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 鈥渞esilient ecosystems鈥: these outlays total 鈧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 鈥渆cological transition鈥 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鈥檚 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 鈥 increases in taxes on the super-wealthy and capital gains, Tobin and Google taxes 鈥 but with such feeble content that spokespeople for the 鈥渂ig end of town鈥 breathed a sigh of relief when they heard the budget news: 鈥淲e were expecting much worse.鈥
For example, tax on fortunes over 鈧10 million rise from 2.5% to 3.5% and capital income over 鈧200,000 a year and labour income over 鈧300,000 loses some exemptions, but the tax 鈥渞eforms鈥 of the 2011鈥2018 PP government, which handed those with assets averaging 鈧10 million an extra 鈧8 billion, remain unreversed.
As for the Tobin tax, it exempts nearly all the most speculative financial 鈥渋nstruments鈥 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 鈧19 billion in funding as against 鈧1.86 billion from budget revenue measures and 鈧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 鈥渆cological, feminist and socially just recovery鈥 starts running out of steam because of the government鈥檚 reluctance to tackle the power and privilege of the Spanish and European elites?
[Dick Nichols is the European correspondent for 91自拍论坛 and Links鈥擨nternational Journal of Socialist Renewal. A more detailed version of this article will soon appear on its web site.]