Spain tries to reverse economic slump as unemployment rises

MADRID: The Spanish government plans to increase taxes on big corporations and the wealthy and use €27 billion ($31.8 billion) in European grants as it tries to reverse one of the deepest coronavirus-related slumps among developed economies.

The country is grappling with a resurgence of the virus that has claimed at least 35,000 lives. The government says COVID-19 has probably infected more than 3 million people since the beginning of the pandemic, although tests have detected only a third of that number.

A strict lockdown from March to June and restrictions to stem more recent outbreaks have harmed the eurozone’s fourth-largest economy, which is highly reliant on tourism and was only just beginning to recover from the 2008-2013 financial crisis.

Spain’s jobless rate grew to 16.3 percent — up from 15.3 percent in the previous quarter — as 355,000 people lost jobs between July and September, the National Statistics Institute said.

The total number of people out of work is 3.7 million, according to the institute. Hundreds of thousands more are still on temporary furlough schemes paid by the government.

In its effort to contain the economic nosedive, the Spanish government on Tuesday proposed a €240 billion national spending plan for next year that increases subsidies for the poorest, raises pensions, broadens a basic income scheme and provides more funds for the hard-hit health system.

The budget proposal for 2021 is set to be approved Tuesday by ministers in the ruling left-wing coalition and submitted to the European Commission. Then the government faces an uphill battle to obtain parliamentary approval with necessary support from rival parties.

Spanish Prime Minister Pedro Sánchez, a Socialist, called the budget proposal “ambitious” and “progressive,” focused on “rebuilding what the crisis of the pandemic has taken from us.”

Deputy Prime Minister Pablo Iglesias, head of the far-left partner United We Can (Unidas Podemos) in the ruling coalition, said that large companies and wealthy people will be taxed further to fund increased spending on social issues.

“We are opening a new era that leaves behind the neoliberal times of austerity and cuts,” Iglesias said, adding that Spain’s new path will be “one of recovery of labor and social rights, of reinforcing what’s public.”

Some of the investment will require policy shifts and legal changes.

Spain has said that it wants to use all €140 billion that the EU earmarked from its massive coronavirus recovery fund to create 800,000 jobs over the next three years.

But the government says it will first use grants, roughly half of the allocated money, and make use of the low-interest loans for the 2024-2026 period.

 The 2021 spending plan includes the first €27 billion from the EU’s fund expected to arrive in Spain.

The proposal is based on the expectation that Spain’s economy will grow 7.2 percent next year. 

The International Monetary Fund expects GDP to sink more than 12.8 percent this year, more than any other developed economy.