Burson-Marsteller

First Steps of the New Spanish Government

by Juan Astorqui on 9th January 2012 • The Cast Blog

by Juan Astorqui and Yolanda Vega, Burson-Marsteller Madrid

Media commentators close to the Partido Popular and the current government, now led by the recently inaugurated President Mariano Rajoy, say that the new team is “a group of capable men.” For the moment, following the first cabinet meeting the government has been able to raise the taxes on salaries (called the IRPF in Spain), property and savings; all to be implemented with immediate effect. In February Spanish salary earners will find their income reduced considerably. However it is important to note that the Government’s spokesperson, Soraya Sáenz de Santamaría, insists that the tax rise “will be temporary.”

In February, companies will apply the new tax rates on salaries and the Spanish people will get considerably poorer. For example: people who receive up to 17,700 euros a year will pay 132 euros more; those who earn more than 53,407 euros, will find their taxes increased by 1600 euros a year and those who earn more than 300,000 euros will pay 21,000 euros more – almost two months of their net salary. Two out of every three of the euros which the State needs will be paid by wage earners. 

With regards to the tax on savings, it is hard to understand a liberal government penalising savings without suggesting alternative channels for investment, even investment in purchasing the national debt. What is the Government trying to achieve with this tax? To add 1246 billion euros to the sum raised by the IRPF.

Finally, nothing has yet been announced regarding budget cuts, the other major aspect of this crisis, although the Ministers of the Treasury, Economy, Industry and even Foreign Affairs have all stated that measures to reduce the State’s deficit will soon be taken. It is calculated that cuts of around 8 to 10 billion euros will be necessary, while increased income due to tax rise is estimated at 6 to 7 billion euros.

Society’s Reaction

How will the Spanish react to these measures? The recent electoral victory of the government in power and the difficult economic situation, together with the situation in neighbouring countries, might be enough to contain popular discontent. In addition to this, a labour reform is looming, and the government has urged unions to be prepared and anticipate it by reaching a common agreement.  It will be interesting to see the unions’ reactions in such a delicate moment. One of the challenges for this new government will be to explain all its decisions effectively. Communication management will be key to keeping social peace.

A Composite Sketch of the New Government

The new government is organised into thirteen ministries, three fewer than the previous one. 

• President of the Government: Mariano Rajoy. He has put himself to the fore of the economic recovery, strengthening the economic area of the Presidency and sharing the rest of responsibility with the Ministry of the Economy and Competition and the Treasury and Public Administration Ministry.
• Vice-President of the Government, the Presidency and Spokesperson: Soraya Sáenz de Santamaría. The all-powerful woman. The iron lady (some call her the Spanish Thatcher). She was one of the president’s closest confidantes during the electoral campaign.
• Economy and Competition: Luis de Guindos. He was Secretary of State to Rodrigo Rato (FMI) and supposedly one of the architects of the Spanish economic miracle under the José María Aznar governments. Can he do it again?
• Treasury and Public Administration: Cristóbal Montoro is in charge of getting rid of disproportionate spending by town and city councils and the autonomous communities and ensuring that tax income flourishes to get the deficit under control.
• Foreign Affairs: José Manuel García Margallo. It is rumoured that he has moved to Brussels. He will have a major say in economic decisions.
• Employment and Social Security: Fátima Bañez. Almost five million people are unemployed and Social Security is in a critical condition. A miracle is not an option, it’s a necessity.
• Defence: Pedro Morenés. Will oversee cuts to salaries, equipment and maintenance.
• Justice: Alberto Ruiz Gallardón.  The legal system requires comprehensive reform. He is the former Mayor of Madrid.  
• Interior and Police: Jorge Fernández Díaz. He is tasked with overseeing the complete and genuine end of ETA (the armed Basque nationalist and separatist organisation).
• Public Investment: Ana Pastor. Responsible for investment in public infrastructure. The government won’t embark on many new projects. Finishing the ones in progress will be her priority. These are not good times for public investment.
• Industry, Commerce and Tourism. José Manuel Soria. Exports, if other countries “pull,” might be a good life raft. Tourism will decline given the economic situation in Europe, but Spain may still be regarded as an interesting option for the industrial sector, particularly if, as last year, instability in North Africa persists. 
• Health, Social Services and Equality: Ana Mato. One of Rajoy’s most trusted people. An expert in sociology. Another minister with cuts on her plate, although she has few real powers after they were transferred to the autonomous communities.
• Agriculture, Fishing, Food and the Environment: Miguel Arias Cañete. He will also live in Brussels, seeking the largest amount of subsidies possible.
• Education, Culture and Sport: José Ignacio Wert. Reforming the national education system has been in discussions for the past thirty years with little progress. Sport may be a source of good news: both the Olympic Games and the European Cup will take place this year.

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