“This pandemic has demonstrated the importance of the public sphere: our public health system, public education, as well as programs like the temporary wage subsidy scheme. This is what the public system is for — and if we are to save this country, we need tax policies that will sustain it.” So said Spain’s labor minister and Unidas Podemos MP Yolanda Díaz as her party launched its proposal for an ambitious new wealth tax. The aim is to use the levy to raise €11 billion per year for state coffers — a figure equivalent to 1 percent of Spanish GDP.
At a moment of deep national crisis, Díaz’s party insists that “those who have the most must contribute the most.” The so-called COVID tax is targeted at the superrich, particularly the one thousand largest fortunes in Spain. Under the proposal, net assets over €1 million would be taxed at 2 percent, increasing progressively to 2.5 percent above €10 million, 3 percent above €50 million, and 3.5 percent for wealth over €100 million. The tax would also apply to assets held by Spanish residents outside of the country.
Addressing parliament, Unidas Podemos leader Pablo Iglesias — today deputy prime minister — encouraged domestic elites to demonstrate “fiscal patriotism” and embrace the new levy. While such generosity seems unlikely, the proposed tax does have widespread popular support — according to a poll published in Público earlier this month, 65 percent of Spaniards are in favor. Crucially, on Friday May 15 it was reported that Iglesias had reached a tentative agreement with Socialist (PSOE) prime minister Pedro Sánchez — committing the PSOE to back its coalition partner’s proposal when it comes before parliament’s post-COVID-19 reconstruction committee.
Even such an agreement among the two parties of government will not automatically see the wealth tax pass into law. But if it gains majority backing to be included in the committee’s recommendations, it will then proceed for formal discussion at cabinet after the summer. Iglesias reckons his party can gain a parliamentary majority for its proposal, something which does indeed seem achievable after Sánchez’s move. The Unidas Podemos leader is betting that, on this basis, he and his colleagues will have the momentum to override resistance from the most economically “orthodox” — and politically centrist — elements within the PSOE, in particular that of finance minister María Jesús Montero.
The wealth tax isn’t the limit of the PSOE–Unidas Podemos coalition’s plans. It is already lining up a series of other progressive tax reforms for this fall’s budget, including a Tobin tax on financial transactions, a “Google tax” on major tech companies who declare taxes elsewhere, as well as increases in capital gains tax and income tax for high earners. If passed in its current form, the “COVID tax” would represent a further radical advance — in particular, because it targets the injustice where working people are lumped with a heavier tax burden than Spaniards who live off their wealth. As Unidas Podemos MP Rafael Mayoral put it, “in recent decades state revenue has been disproportionally sustained through taxing workers’ income while the privileged have received tax amnesties and sent their money abroad.” Now, he hopes, Podemos can use its role in government to change that.
Without doubt, such measures are indeed necessary. With the national economy overly dependent on tourism — and marked by some of the highest levels of inequality in the Eurozone — Spain’s working class is likely to be one of the European populations hardest hit by the COVID-19 crisis. Already in 2018, some 26.1 percent of people in Spain, and 29.5 percent of children, were at risk of poverty or social exclusion — worse even than the EU average of 21.8 percent. After his visit to the country this January, the United Nations’ special rapporteur on extreme poverty and human rights spoke of: “fragmented public services that were severely curtailed after 2008 and never restored . . . a completely inadequate social protection system that leaves large numbers of people in poverty by design, a segregated and increasingly anachronistic education system, [and] a fiscal system that provides far more benefits to the wealthy than the poor.”
The coronavirus pandemic illustrated the damage caused. And as lockdown restrictions begin to be lifted, it is becoming increasingly clear that Spain is entering a moment of renewed social polarization. Some of the coordinates of this new moment are already becoming visible: in recent weeks, food banks in Madrid’s working-class neighborhoods saw thousands queuing for hours to receive aid, whereas the capital’s most affluent neighborhoods instead saw anti-lockdown protests break out among the ultraconservative rich. Raging against the PSOE-Podemos government, these latter are now aping the apocalyptic rhetoric, if not the violence, of the Venezuelan opposition.
In this potentially explosive mix, Podemos is at pains to stress that decisive measures will be necessary to maintain social cohesion — and certainly the coalition has little alternative if it is to get ahead of events. The right-wing Partido Popular (PP) is working off the basis that the government will not survive until the end of 2021 — expecting the coalition to be overwhelmed by the challenges of an economic crisis which is likely to see unemployment top 21 percent and GDP fall by 13 percent this year. Caught in a battle for leadership of the opposition with extreme-right Vox, the PP itself has no interest in cooling tensions.
Better to Be in the Room
Already from the start of the crisis, the PP wasted little time in politicizing the pandemic and is now seeking to connect with the social resentments that are feeding the anti-lockdown “revolt of the rich.” With its polarizing rhetoric, the party’s attacks on the government have become largely indistinguishable from that of extreme-right Vox. PP leader Pablo Casado has accused Sánchez of seeking “a constitutional dictatorship” with his use of emergency powers, and of delivering the country to “the ultras” in Podemos and the Catalan left. As Brais Fernández notes, none of this is meant to deliver an immediate victory for the Right, but rather to prepare the ground, through a protracted war of attrition, for the Left’s exhaustion and defeat over the next eighteen months.
For Iglesias, the government has no choice but to accept this conflict — acting with the knowledge that the alternative to the current coalition is a radicalized right-wing with a growing neofascist presence. He and his Unidas Podemos cabinet colleagues have walked a narrow line between strict loyalty to the administration against the attacks coming from the Right while, at the same time, seeking a certain heightening of tensions within the cabinet by holding firm on various points of disagreement. Their mantra has been that “if conflict is not public, it does not exist” as the party engaged in a number of high-profile standoffs with the PSOE’s economic heavyweights Montero and Nadia Calviño — with varying degrees of success.
There have been moments in recent months when the government has been left in a state of near-paralysis by its own internal divisions — such as this week’s standoff over the repeal of right-wing labor reforms which Sánchez green-lighted and then backtracked on after pressure from Calviño. As things stand there is still no consensus within cabinet on how to proceed on labor reform — a key component in the program for government agreed in January.
Probably the most bitter pill Unidas Podemos has been forced to swallow, however, has been Sánchez’s refusal to support a rent payment suspension — instead backing a scheme of interest-free loans for tenants in arrears, similar to that touted by soft-left Labour leader Keir Starmer. Yet there have also been successes for Iglesias’s party — in particular, forcing PSOE into a rapid approval of an ambitious guaranteed minimum income program that will benefit around one million homes at risk of poverty when it comes into effect at the start of June. And with the party deciding to concentrate its forces in the coming months around a number of key battles (such as driving through the wealth tax), Iglesias’s strategic wager is that Podemos’s position within government can still be harnessed to push for a more democratic and socially just way out of the crisis.
In the Balance
Even if internal differences can be successfully navigated, what remains unclear is how much margin for maneuver the PSOE-Podemos government really has. A wealth tax would represent an important blow in terms of imposing tax justice on the rich; in its current form, it would mean a fivefold increase in the tax burden on their assets.
Given Spain’s tax-to-GDP ratio is 6 percent below the Eurozone average, there is room to broaden the state’s tax base further; an ambitious fiscal reform package this fall could provide lasting support for overstretched public services and fund new welfare protections, such as the minimum income scheme. The coalition has so far ruled out public spending cuts and has also announced a major investment plan in green energy and jobs that would aim to cut emissions by 35–42 percent in the next ten years.
Yet the parties’ fate is not just in their own hands. With national debt likely to hit 115 percent of GDP this year, Spain will also require substantive European financing in order to fund economic reconstruction. In this respect, Monday’s French-German agreement for a €500 billion rescue fund sounded a worrying note when it talked of financial aid in exchange for a “clear commitment of member states to follow sound economic policies and an ambitious reform agenda” — meaning, renewed austerity.
Like elsewhere in Southern Europe, Spanish society is still picking up the pieces from the severe cuts imposed by the Troika after 2011. The battle now for Europe’s only left-wing coalition is to avoid being forced into a repeat of this. Its fiscal priority must be the higher objective of wealth redistribution and strengthening the public sphere — not obedience to EU-imposed deficit targets.