Will Rajoy Have What it Takes After the Spanish Elections on Sunday?


Election day on Sunday 20th November should produce a dramatic change in Government for Spain. But what will this mean?

On Sunday, the Partido Popular, the centre right political party is expected to romp home with an overall majority of the 350 member Congress of Deputies, Spain’s lower legislative house.

The newspapers predict that the elections, that use the d’Hondt system of proportional representation, will give the PP 190-195 deputies in Congress with over 45% of the total votes. The incumbent government since 2004, the PSOE, is expected to have only 116-121 deputies. This signifies over 11% of the population changing allegiances between the two major parties.

The PP already controls the majority of Spain’s 8,112 municipalities, 11 of the 17 Autonomous Communities (Madrid, Baleares, Castilla-La Mancha, Valencia etc) and has an outright majority in the Senate, Spain’s upper legislative house.

Andalucia’s elections will take place in March 2012 and are also predicted to produce a majority for the PP. Andalucia has been run by the PSOE without interruption since 1978, when democracy was restored to the country after Franco’s demise.

This singular swing in the polls illustrates the extent of change that the Spanish people now want to see in their country.

So the PP will have an absolute majority throughout the country, almost without exception. But what will they do with this never-before-seen level of power?

The leader of the party Mariano Rajoy and his team, have been notably evasive in providing substantial details of what they will do with this power. The Spanish people are accustomed to this and not surprised. Most PP supporters, when asked, simply say that they believe the PP will run the country more efficiently.

From a tax perspective, the PP has stated that:

  • The income tax deduction for home purchase loans will be restored. Only a vestige of this deduction remains since the PSOE took power nationally in 2004.
  • A new income tax deduction for increasing savings.
  • Small businesses cash flow will be improved as they will be able to account for VAT on a receipts and payments basis, avoiding having to pay VAT on debtors.
  • Corporation tax will be reduced to 20% with more allowances for reinvestment.
  • Busnesses will be able to take on the first employee without paying employer’s social security contributions, which amount to almost 40% of pay.

These measures can only help the beleaguered property sector of Spain, stimulate spending and savings for the middle and upper income sectors and help businesses. But will they make Spain more competitive?

The main thrust of the PP’s electoral programme is the reform and rationalisation of public spending. Part of this programme aims to reduce the levels of government in Spain.

At the moment government administration exists in bewildering and multifarious complexity. The Spanish state, the autonomous communities, the regional authorities and the municipalities, as well as comarcas, mancomunidades, and I am sure I have missed a few. The PP has plenty of scope to slash through this mess. But will Spain truly get rid of its notorious bureaucracy?

The PP has targeted for reform Spain’s antiquated and rigid labour law. This is a dangerous area as it is a sacred cow in the Spanish psyche. In the opinion of just about everyone outside Spain, labour law is probably the single reason (combined with the labour tribunals which are close to being a bad joke) for Spain being economically so uncompetitive. From within Spain, the legal framework for employment seems as fundamental and immutable as the Constituion.

Sadly, I haven’t seen anything written anywehere about the need to reform the Spanish tribunal and court system, which has always been defective but is now near collapse.

So, it seems certain that Spain will be under the control of a conservative government for the first time since Franco. We will see what the PP actually achieves.

If the PP fails to bring about the fundamental and sweeping reforms that the country desperately needs in most of its institutions then Spain will have lost a golden, once in a lifetime, opportunity.

If the PP does what is truly necessary in the next 4 years then Spain will have a fighting chance to dig itself out of the recession, possibly better than many EU countries.

The question is: will Rajoy have the c***nes to do a Thatcher for Spain? We can only hope.

Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.