Monday, June 29, 2009

Turn Left, Turn Right, Then Go Back To Where You Started

The problems of running a minority government were on display for all to see last week in Spain. The government got itself into a mess over taxation as it became clear that measures which suit one potential parliamentary ally can make some of the others withdraw their support. That nice sounding phrase "geometria variable" has been overused as an attempt to spin the reality that Zapatero's administration still has no reliable understanding with other parties to guarantee that it wins votes.

Last week's fiasco came with what seemed to be an agreement between the PSOE and Izquierda Unida on the need to make the tax system more progressive and deal with some of the more blatant inequalities. In the end the agreement lasted about 6 hours, it seems that the right wing Catalan nationalists weren't going to accept it and they have enough votes to give the government a majority. The government is starting to prepare the budget for next year and is looking for support. With income declining because of the crisis, and spending rising for the same reason, taxation has become a key issue and there have already been recent increases in some indirect taxes.

Zapatero famously claimed a few years ago that reducing taxes "es de izquierdas". There are of course circumstances where this could be true, for instance with measures specifically designed to reduce the tax burden on low incomes. However, getting rid of a tax only paid by the wealthier sections of society (the impuesto de patrimonio) and replacing it with increases in indirect taxation that affect everyone equally doesn't fit this description. The short lived agreement with IU wasn't very specific but focused attention on a number of areas. One candidate for change is the general €400 rebate which was introduced prior to the last election and which was never a very effective measure in any case; in the light of what has happened since it no longer seems to make much sense.

Then there is what is known as the "Ley Beckham". This is a very special tax rebate, David should be proud to have it named after him. It means that a top ranking and high earning foreign footballer in Real Madrid or Barcelona ends up paying the same percentage rate of income tax as someone who only earns €17000 a year. The Spanish finance minister, Elena Salgado, came up with the rather silly justification that the law is intended to help those whose professional career is short. Most Spaniards will not earn in their entire working lifetime the amount that Cristiano Ronaldo will save in a single year from the application of this measure. There would be no shortage of volunteeers to have a short working life with that sort of benefit, form an orderly queue.

For the moment the government has parked the issue for later in the year, but a lot of commentators are starting to wonder whether the lack of a stable majority is going to mean that we have a government notionally in power but unwilling to take any risks or present measures that might expose the lack of support. The fear of losing votes has already seen the PSOE vote with the opposition on some occasions rather than face defeat. The reality of Spanish politics is that minority governments are more common than majority ones, but with as much as three years still to go before the next election has to be held the geometry needs to be a bit less variable.

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