Spanish election favourite Alberto Núñez Feijóo vows to overhaul windfall tax

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The conservative frontrunner to be Spain’s next prime minister has vowed to overhaul a €3bn windfall tax reviled by banks and energy companies, saying he wanted to make it legally watertight but offering no commitment to repeal it.

Alberto Núñez Feijóo, who is leading Socialist incumbent Pedro Sánchez in the polls ahead of this month’s general election, told the Financial Times that the levy was “badly designed” and needed to be amended. But his pledge to reform it is likely to disappoint businesses that hoped he would scrap it entirely.

Feijóo, head of the People’s party, acknowledged that he would face the daunting task of bringing down Spain’s massive public debt burden if elected, putting him under pressure to reduce the cost of government and generate additional tax revenues.

Sánchez introduced the windfall tax to divert “extraordinary” profits from business into government initiatives to combat the cost of living crisis. But it has been scorned by leading companies such as Santander, the bank, and power group Iberdrola, which are challenging it in the courts.

“We have to adjust the legal risk we’re incurring,” Feijóo said, arguing that the levy was highly vulnerable to court challenges because it applied, unusually, to revenues as opposed to profits. “This is not the right model.”

He pledged to “talk to the electricity companies and banks about how we can ask for their solidarity and contributions to overcome the deep public debt and deficit . . . before taking decisions”.

Sánchez himself has used the language of solidarity, saying businesses must do more to help citizens because banks are benefiting from rising interest rates and energy companies have profited from high gas prices.

While polls give Feijóo a clear lead, they also suggest the PP would fall short of an absolute majority in parliament and could only govern with the support of the hard-right Vox party.

Feijóo has consistently said he does not want to form a coalition with Vox, a populist party that challenges the idea of gender-based violence, dislikes multiculturalism and is sceptical about climate change. He said voters had to “make a decision about whether they want a strong government or, on the contrary, a coalition government with Vox”.

Yet the two parties have struck coalition deals at the local and regional level since elections in May. Some PP-Vox city governments have since stopped LGBT+ flags being flown from public buildings. Sánchez responded to a pact agreed in one region on Friday by saying “Spain goes backwards” when the pair govern together.

Whoever wins the election will have no choice but to tackle the country’s public finances. Enforcement of the EU’s Stability and Growth Pact resumes from next year after it was suspended due to the coronavirus pandemic, adding to the pressure for member states to curb borrowings.

Spain’s public debt is equal to 113 per cent of gross domestic product and its budget deficit last year was 4.8 per cent of GDP.

The country’s debt load jumped due to the economic costs of the pandemic, but Feijóo also accused Sánchez of allowing the public sector workforce to swell.

Pledging to avoid cuts to public services, Feijóo said he would boost tax revenues by making Spain one of the fastest-growing economies in the EU and lift employment — measured via the social security system — to 22mn from its current 20.9mn.

Spain’s economy grew 0.5 per cent in the first quarter and was not one of the eurozone’s top performers. Feijóo stressed that Spain was one of the last EU economies to return to its pre-pandemic size.

Asked how he would achieve his economic goals, the PP leader said he would pull in more foreign investment with “specific fiscal policies to make Spain an attractive country”, including tax incentives for people moving there. He would also look to consolidate Spain’s position as a renewable energy hub.

Feijóo has promised to cut income tax for those earning less than €40,000 a year — which is the majority of Spanish adults — saying doing so would boost economic growth too.

Sánchez is touting his own success in attracting foreign investment and encouraging the growth of renewables, as well as stressing how employment has increased sharply under his leadership. The prime minister has criticised Feijóo for waging a negative campaign of attacks against “Sanchismo” without offering a comprehensive plan for the country.

The Sánchez government has said the windfall tax would bring in €3bn this year. Feijóo acknowledged that sum would be useful, but said it would be even more valuable “if it were dedicated to lowering public debt, and not spent”.