"If Sánchez loses the Government it will not be because of the economy. It will happen to him like Biden, it will be because of everything else." A Government source thus summarizes the feelings of many of the ministers in the economic area, who are finding it increasingly difficult to find room for improvement in their portfolios. In eight years of socialist government, the minimum wage has risen by 66% and the unemployment rate has fallen to its lowest levels since 2007. But inflation has increased by 26% and the effort to buy a home takes up more than 36% of a household's income, when in 2018 it was at 30%, which economists consider the limit of what is reasonable.
The cost of living and the difficulty of accessing housing have clouded the objective achievements in stability and job creation, a global challenge for developed economies that Executives are increasingly having trouble addressing and that will mark the fall's economic agenda. The political calendar in Spain coincides with the beginning of the academic year with the death rattles of the second term of the progressive coalition government. What is approved in the coming months will leave the flavor of the electoral campaign.
"Salaries, housing, labor rights and public services. These are the bases that should guide public policies," says another government source, in this case from Sumar, who points out that a new increase in the minimum wage will be pursued this year.
But where the Executive intends to concentrate its last breath is on housing, a concern that the two Government partners share but without the magic formula that guarantees parliamentary support. The four deputies from Podemos, in the Mixed Group, and the seven from Junts are water and oil to ensure that a new decree on the matter sees the light. The Catalan party “seems like the party of small landowners,” accuses a source close to the negotiations. For its part, Podemos, which was born largely as a reaction to the evictions of the previous financial crisis, also sees drawbacks to every proposal that is interpreted as subsidies to landholders.
The draft of the decree law that circulated among political groups in July (and that was promised for the return of summer) has been advanced by other peremptory problems on the left, such as the energy crisis and the management of the migratory wave in Ceuta. “Anything we approve now remains buried,” they say in the Government. The Executive's intention is to approve new initiatives that involve increasing the planned investments, but also promoting innovative tools such as those that the Official Credit Institute (ICO) will deploy with the new subsidies to promoters. Sumar insists above all on the extension of rents, to expand the protection of families. Meanwhile, the narrowing of powers—mainly in the hands of the autonomous communities—limits the playing field for the central Executive.
Containing the general rise in prices will be the other battleground. There is concern about the increase in gas prices, which in an international context of conflict in the Persian Gulf and rising demand seems inevitable. The Government is waiting to see how the return of the diesel bonus works this September to contain inflation. But if in the face of winter a contagion to electricity or food is perceived, it will act again, with room to recover measures such as the tax reduction.
Taxes are one of the few resources that the State has to expand the disposable income of families. In these years of unabated inflation, the income tax has not been modified in accordance with prices, which has caused it to take a proportionally greater bite out of salaries. The Treasury has refused to modify it because, it says, it would also benefit high incomes and has opted for other measures such as lowering taxes on the lowest brackets. But in a context of rising prices and rising interest rates, the average salary becomes the filling for the sandwich. Experts estimate that almost a quarter of the salary increases have been eaten up by the lack of adaptation of the tax.
Deflating the personal income tax rate—that is, adjusting the income brackets with the rise in inflation—would be a relief for pockets that would offset, at least partially, the rise in the cost of living. A Government source does not rule out taking that step, but remembers that the extra revenue has been very useful to deploy direct aid packages, as in the case of anti-crisis shields. The Treasury, according to internal sources, does not now consider it a priority, with everything on the table and the focus being more focused on taxes on the super-rich. But the personal income tax adjustment would in principle have enough votes to pass in Congress and would be an interesting lure to gain support in the hypothetical presentation of public accounts.
This is the most complicated legacy for the Executive: leaving approved Budgets for 2027. The deadlines establish that the Government must send the public accounts bill to the Cortes before the end of September, so that they come into force in a timely manner for the following year. That deadline has been regularly missed since in 2011 the then president, José Luis Rodríguez Zapatero, chose not to try to approve a Budget and force an extension so that his successor could assume the new cuts. The 2012 accounts were presented in March and from that moment on creative flexibility was opened so that the moment of presenting the budgets was determined by political opportunity and not by law.
