Juan Laborda – Spain: What Should a Hypothetical, and Failed Coalition Between PSOE and Podemos Have Included? (II)

The failed coalition in Spain of the Social Democrats and Podemos has revealed just how conservative the Spanish Social Democrats are.

Juan Laborda teaches Financial Economics at the University of Carlos III and Money and Banking, Syracuse University (Madrid)

Originally published in Spanish at vozpopuli

Updated and edited by BRAVE NEW EUROPE

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So in the end Pedro Sánchez, Prime Minister of the Government of Spain and Social Democrat (PSOE), has failed to secure a coalition with the leftist Podemos party. Sanchez and his party were not prepared to give Podemos a fair share of ministries in accordance with the perecentage of votes they obtained in Spain’s recent general election. Sánchez and his social democratic acolytes put one obstacle after the other in the way that would have made Podemos’s decision to join a coalition possible. Guided by what Andrés Villena, author of the book “Las Redes de Poder en España. Élites e Intereses contra la democracia” (Networks of Power in Spain. Elites and Particular Interests against Democracy), calls the demoscopic technocracy; these new-witches residing in the Moncloa Palace (the official residence and workplace of the Prime Minister of Spain), have been clouding the view of the incumbent president, endangering the hope and expectations of millions of voters. The only person responsible for this failure is Pedro Sánchez, and in a possible new general election, he will fail to surpass the barrier of 100 deputies much less gain an absolute majority. Let’s hope he fails in these. I shall explain what lies behind these extraordinary events that have been occurring lately in a later blog.

However, it was not be, and the coalition government failed. At least let me detail what could have been done from an economic point of view to achieve an outcome beneficial for a large majority of Spaniards. In my previous blog, I explained two necessary conditions that should be accepted by the PSOE and Podemos, necessary for a joint economic programme. First, this agreement between the two parties should emphasize the failure of the economic consensus that has governed the Spanish economy since the early 1980s. We find ourselves with a broken system of economic governance, called “neoliberalism” which, as James Montier and Philip Pilkington make explicit, is a project defined by disaster, where the policies neo-liberalism prescribes are profoundly unpopular and dysfunctional. It is a project that benefits only a few.

Second, Spain’s prime minister should have understood why Spain’s robust economic growth is anything but a mystery. The true causes are not those offered by the patriotic media, full of spurious analyses. The reasons are different: budgetary relaxation; the role of the European Central Bank in applying some of the principles of Modern Monetary Theory; and wage increases, which are not negatively affecting the productivity of companies. That’s what I explained at length in my previous blog.

Elements of an economic programme that should be applied

Let’s get to the point: what should have been the content of a hypothetical economic programme of a PSOE-Podemos coalition government? Every one of the economic policy measures proposed should be aimed at achieving the goal of full employment through a change of the model of production based upon a green economy and an ecological transition, as well as ending poverty, inequality and the misery that have been rapidly increasing since 2008. This change of paradigm should put an end to one of the hydras that emerged at the dawn of Neoliberalism, the financialisation of the economy as a whole, and which in our country was also mixed with an ancient domestic tradition, the extraction of rents without any kind of control, an aspect that goes back to the times of the Honoured Council of the Mesta (A state supported monopoly of wool producers in the middle ages in Spain).

How can this be achieved? A European Green New Deal with massive public funds is needed – at least 2 trillion euros. Spain alone does not have the financial capacity for such a project. However the stakes are high. Although the different nations of the European Union lack monetary sovereignty, the balance sheet of the European Central Bank could be used for this. The basic instrument linked to the European Green New Deal should be a job guarantee (0% unemployment). Within this framework different projects can be included, such as a state plan for the refurbishment of housing linked to energy efficiency and affordability for all. Under this scheme there would be no difficulty in gradually increasing the minimum wage.

This approach contrasts with the proposal of the Green Deal presented by the new president of the European Commission, von der Leyen, based on market mechanisms and more taxes. She still doesn’t understand economics. These are mere plasters. Let her read the proposal and policy of Alexandra Ocasio Cortez! Companies are always counted on to act as guided by the government setting political policies of action and what is required of them.

New tax system: more equalitarian and wealth creation are compatible

The left should rebel against the tax fallacies of the right. Can there be anything more inefficient than helping large companies and wealthy taxpayers to plunder the state coffers of taxes, so that, once you are a minister, you raise VAT and personal income tax for employees? That is the Montoro (Cristóbal Ricardo Montoro, former Spanish finance minister under the previous conservative government) brand. We must rethink our tax system, assuming that taxes paid by the lower classes or small entrepreneurs cannot be raised any more.

It is necessary, in the first place, to design a tax system that under the principle of equality redistributes wealth from the wealthiest to the poorest without punishing productive activity, in short, the creation of wealth. If properly designed, it would give ample scope for lowering taxes on labour and capital and, above all, it would make it possible to ostensibly reduce such an unfair and regressive tax that is levied especially on the weakest, the VAT. In order to do so, it is necessary to have the political will and go after what we call “rent seekers”, wealth extractors who do not contribute to the common good. The solution was devised more than 100 years ago by a San Francisco economist, Henry George. It is a question of establishing a tax on the value of the land, but with exemption minimums that free 95% of the population from paying it.

Secondly, it is necessary to introduce a minimum tax for large companies, supporting and promoting the draft Common Consolidated Coporate Tax Base Directive. We must now at least recover the capacity of the state to collect taxes that have been evaded by the manoeuvres of multinational corporations by artificially transferring their profits to low tax countries. Multinationals must pay their taxes in the countries where they make their profits, and a series of inspection measures and legal amendments are also needed to prevent aggressive tax planning in the internal operations of business groups. To avoid these manoeuvres, following the proposals of the economist Gabriel Zucman, author of “The Hidden Wealth of Nations”, it is necessary that taxes are established on sales, personnel costs, or investments in tangible fixed assets. In this way, intangibles and transfer prices could not be tampered with.

Third, the Inheritance Tax should not be eliminated, only an exempt minimum that benefits the majority of the population, but not the wealthiest. It is comforting to read the arguments that certain American multimillionaires used in a manifesto when George W. Bush, under the ideological influence of the neoconservatives in economic matters, wanted to eliminate inheritance tax in the United States. It said: “Eliminating inheritance tax would be negative for our democracy, our economy and our society…. It leads to an aristocracy of wealth that will transmit to its descendants control over the nation’s resources. All on the basis of inheritance, not merit.

Under this radical tax reform, productive activity would increase, and there would be ample scope for lowering taxes on labour, small and medium-sized enterprises, and, above all, it would make it possible to ostensibly reduce such an unfair tax, which is levied especially on the weakest, VAT. Everything else are mere plasters and wasted time.

All these proposals would represent a leap forward for our nation, at a time when we cannot afford to miss the train of history again.

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