The frontrunner for the conservative party to become Spain’s new prime minister, has pledged to revamp a €3bn tax on windfall gains that is reviled both by energy and banking companies. He said he wants to make it legal watertight, but did not commit to repealing it.
Alberto Nunez Feijoo said that the levy needed to be changed because it was “badly designed”. He is currently leading Socialist Pedro Sanchez ahead of the general elections this month. Businesses who hoped that he would abolish it completely will be disappointed by his promise to reform the levy.
Feijoo is the head of the People’s Party. He acknowledged that if he won the elections on July 23, it would be a daunting task to bring down Spain’s huge public debt burden. This put him under pressure for reducing the cost of government, and generating additional tax revenue.
Sanchez introduced the windfall taxes to redirect “extraordinary” profits of businesses into government projects to combat the cost-of-living crisis. It has been criticized by major companies, such as Santander and Iberdrola. They are fighting it in court.
Feijoo stated that “we have to adjust the risk of legal action we are taking.” He argued that the levy is highly susceptible to court challenges, because it applies, in an unusual way, to revenue rather than profits. “This isn’t the right model.”
He said he would “talk to electricity companies and banks to ask for their support and contributions in order to overcome the public debt and deficit”. . . before taking decisions”.
Sanchez has spoken of the need for businesses to do more in order to assist citizens, citing that banks have benefited from higher interest rates while energy companies are profiting from high gas costs.
The polls show Feijoo to be in a clear majority, but they also indicate that the PP will fall short of a majority absolute in the parliament and can only govern with support from the Vox hard-right party.
Feijoo, who has been vocal about his opposition to forming a coalition government with Vox – a populist group that opposes gender-based violence and multiculturalism, as well as being sceptical of climate change – has said this repeatedly. He said that voters must “decide whether they want to have a strong government, or, on contrary, a coalition with Vox”.
Since the May elections, the two parties have formed coalitions at the local and region level. Since then, some PP-Vox local governments have banned the display of LGBT+ flags on public buildings. Sanchez said that “Spain is going backwards when both parties govern together” in response to a Friday pact reached in one area.
No matter who wins the elections, the public finances of the country will be in the spotlight. The EU Stability and Growth Pact will resume enforcement next year, after being suspended because of the coronavirus epidemic. This will increase the pressure on member states to reduce borrowing.
Spain’s debt to GDP is 113 percent, and the budget deficit was 4.8% last year.
Feijoo accused Sanchez of allowing public sector workers to grow.
Feijoo, who has pledged to not cut public services in Spain, said that he would increase tax revenues and make Spain one of Europe’s fastest-growing economies. He also promised to raise employment (measured by the social security system) to 22mn people from the current 20.9mn.
Spain’s economy only grew by 0.5 percent in the first three months of this year, and it was not among the top performers within the Eurozone. Feijoo said that Spain had been one of the few EU economies to reach its pre-pandemic level.
When asked how he planned to achieve his economic goals the PP leader replied that he would attract more foreign investment through “specific fiscal policy” in order to make Spain a more attractive country, including tax incentives for those moving there. He also wants to strengthen Spain’s role as a hub for renewable energy.
Feijoo promised to reduce income tax for those earning under EUR40,000 per year, which is majority of Spanish adults. He said that doing so will also boost economic growth.
Sanchez touts his success in attracting investment from abroad and promoting renewables. He also highlights the sharp increase in employment under his leadership. Feijoo has been criticised by the prime minister for his negative campaign against “Sanchismo”, without offering any comprehensive plans for the country.
The Sanchez government said that the windfall tax will bring in EUR3bn for this year. Feijoo said that the sum was useful but it would have been even more valuable if it had been used to reduce public debt and not spent.