Analysis. The leftist Spanish government has agreed on a budget that raises the minimum wage, raises taxes on high earners and large estates, and gives cities like Barcelona the ability to control rents that are artificially inflated.

In Spain, PSOE and Podemos reverse course from austerity

Thursday was clearly the most important day yet for the government led by Pedro Sánchez, which has been in power for 124 days: the pact between the PSOE and Unidos Podemos shows every sign of being a serious agreement for parliamentary support, not just for approving the 2019 budget. The negotiations went on for weeks, but even Monday’s surprise turn, when Podemos threatened to blow up the deal, seemed to be nothing more than part of the playbook for productive negotiations that would soon end with a positive result.

The unusual scene of the signing of the agreement at 8:30 a.m. gave Prime Minister Sánchez and his government a powerful shot in the arm, as he has managed to honor the commitment to present the budget in Brussels next week and before Congress by the end of the month. On their part, Podemos, in addition to a significant boost to their image, have certainly managed to set out in black and white some markedly left-wing commitments over the 50 pages of the agreement, ones that are important to their voters and almost revolutionary after a decade of regressive policies of the right.

In all, the leftist coalition is ready to present itself before the voters in a key year (with both European and administrative elections, as well as regional elections in Andalusia in two months) as a clear option to form a government.

In a press conference after the government meeting on Thursday, the government’s spokesperson, Isabel Celaá, together with Finance Minister María Jesús Montero, explained that the budget is aiming to bring economic improvement and the end of the crisis for ordinary citizens, “so they would really notice it in their daily lives.” The agreement was made “in conformity with the programs of both parties,” and the intention behind it was “to move forward in the consolidation of the welfare state.”

Among the most significant and meaningful measures approved as part of the new budget are: a hike in the minimum wage from €736 to €900 per month; a hike in the personal income tax for those earning more than €130,000 per year; an estate tax of 1 percent for fortunes worth more than €10 million; a type of “Tobin tax” of 0.2 percent on financial transactions; pensions tied to real inflation (as demanded by the retirees protesting in recent weeks) and the reintroduction of benefits for the unemployed over 55 years old; a 40 percent increase in the budget for social security payments for dependents, a longstanding demand by the Left and by the autonomous communities; €50 million to fight “energy poverty” and incentives for electric cars; an increased budget for housing; and also, notably, the prominent demand by Podemos and the “real estate cities“ to be allowed to adjust rents in the case of speculative bubbles—as, for example, in Barcelona—​​and the commitment to reintroduce the five-year term for rent contracts.

Not surprisingly, Barcelona mayor Ada Colau held a press conference immediately afterwards, in which she promised that whenever it gets the ability to do so, Barcelona will cap rents “immediately,” since Catalonia has already established a “reference price index” which can be used to identify unfair rent increases.

And even more: in line with the priorities of the Socialist government, the budget offers an increase of 6.7 percent in funds for research—the largest increase in funding since the Zapatero period—as well as 22 percent more funding for national research projects. There is also an increase in funds for fighting child poverty, with an extra €25 million for canteens.

The agreement also includes measures that go beyond the 2019 budget: Iglesias and Sánchez have pledged to change the law on sexual violence to clarify that an affirmative “yes” is required for consent, and to remove from the criminal code the anachronistic crimes of offence against the Crown or offence against religious sentiments (for which there have been famous cases of convictions recently).

Yet another stellar measure approved is recognizing full equality between motherhood and fatherhood by 2021: starting next year, paternal leave will increase from five to eight weeks, going up to 12 weeks by 2020, and 16 weeks, the same as maternal leave, by 2021. The leave will be non-transferable.

Also with a view to help families, municipalities will be allowed to spend their budget surplus for daycare centers (which the PP had forbidden), and the government will allocate €50 million extra for municipalities that don’t have a budget surplus. The desideratum of a budget with a “gender perspective” that the government has committed to has not yet been implemented, except for the lowering of the VAT on essential feminine hygiene products such as sanitary pads and tampons.

Other measures in the pipeline are: further reforming the restrictive labor law passed by the PP, some aspects of which have already been addressed in 2018; reforming the “gag law” curtailing the freedom of expression; and reforming the VAT system to fight the misuse of VAT numbers and to make the VAT contribution system more reasonable (up to now, the law has not distinguished between those with small income and large corporations).

At this point, the government will have to wait for a green light from Brussels, while being unable to make use of the extra €6 billion in loans approved by the EU, which the PP used a technical loophole to prevent the current government from accessing. Most importantly, the budget has to pass a parliament vote: the government will need an extra 25 votes to reach the majority of 151. In addition to the Basque nationalists, the Catalans will be a harder nut to crack.

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