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Upper House gives final approval to National Budget for 2021

Tuesday 22 December 2020

The plenary session of the Upper House of Parliament has given the green light to the draft National Budget for 2021, which is finally approved after passing the vote in the Upper House by a large majority.

This is a country Budget, designed in a context of the health emergency caused by the global COVID-19 pandemic, and which brings to an end a period of two years whereby Spanish society now needs to boost its public policies to mitigate the impact of the crisis.

These are public accounts that have received the broadest political support in the democracy. Never before have public accounts been approved with the vote in favour of so many different parties. This reflects the intention of this government to enter into dialogue and forge agreements.

The government has highlighted that these accounts come as a result of consensus and dialogue with the different political formations. An example of this is when on 12 November the full amendment of the Budget presented to the Lower House suffered the biggest defeat in the history of the democracy, with 198 votes against.

Furthermore, on 3 December, this Budget was passed through the Lower House, backed by 11 different political formations. Subsequently, on 14 December, it was also broadly approved in the Upper House, following the rejection of all five vetoes presented.

Now, since no amendments have been made thereto, the draft Budget will not be altered and as such does not have to be passed back to the Lower House, having been definitively approved by the plenary session of the Upper House.

The Budget shields and strengthens the Welfare State with the largest volume of social expenditure in our history. It also fosters inclusive and sustainable economic growth with the aim of not leaving anyone behind and will become a key driver of the transformation and modernisation of the productive fabric over the next decade.

Accordingly, Spain will have a new Budget that will come into force on 1 January 2021, as provided for by law, something that has not happened since 2016. In addition, this will be the first Budget since 2018, bringing to an end the extension to the old Budget and paving the way to unprecedented public accounts, which lay the foundations for the socio-economic recovery and reconstruction in the wake of the crisis stemming from COVID-19.

Extraordinary accounts

These are extraordinary public accounts for an extraordinary time, which must become the driving force behind the socio-economic reconstruction of the country following the impact caused by the pandemic. They will also lay the foundations for the transformation of the productive model by channelling 27 billion euros of the European funds, which will lead to the development of the energy transition and the green economy, digitalisation, social and territorial cohesion and equality.

This Budget protects the Welfare State, as it includes the largest volume of social spending ever, with 239.77 billion euros. This allocates the largest items to health, grants, dependency and the fight against child poverty.

This National Budget also fosters sound, inclusive and sustainable economic growth, which boosts R&D+i to make Spanish companies more competitive.

These accounts have been designed under a prudent perspective, with a macro-economic chart backed by AIReF. The government maintains its commitment to stability and budgetary balance. In fact, the Budget provides for a 3.6-percentage point reduction in the deficit for 2021, one of the largest reductions on record.

Shield the Welfare State

The National Budget for 2021 will protect and strengthen the pillars of the Welfare State, with the main aim of strengthening public policies and providing a response to the needs of the public, above all the most vulnerable groups. This thus become a guarantor of equal opportunities and generates a safety net for the middle and working classes.

Accordingly, next year's accounts strengthen health policy with more than 3.14 billion euros, which is a 75.3% increase in resources for primary care and to purchase the health material necessary to fight COVID-19.

Investment in education policies will be raised by 70%. In this regard, grants will be increased by 514 million euros to 2.09 billion euros, the highest figure ever, to ensure that no student stops studying due to a lack of resources.

The items for dependency will be raised by 34.4% to 2.36 billion euros, the greatest amount of financing ever, which will benefit some 1.1 million people.

The Budget also provides for a 0.9% rise in pensions, in line with the real CPI, which will allow the purchasing power of almost 10 million pensioners to be guaranteed. Non-contributory pensions will also rise in 2021, by 1.8%, double the CPI.

The fight against child poverty will also enjoy the largest item ever, with an increase of 59%, to 159 million euros, which will benefit 1.1 million children living in families with scant resources.

In addition, the Budget consolidates the Minimum Living Income by allocating 3.02 billion euros to this provision, which 850,000 households will receive once fully implemented.

For its part, territorial cohesion is also bolstered, with 11.53 billion euros allocated to infrastructures. The items allocated to civil research will also be increased, which will amount to 11.48 billion euros, an 80.1% increase.

Transformation of productive model

In addition, the Budget for 2021 is an instrument to channel 27 billion euros that Spain will receive from the European recovery funds, which will allow Spain to modernise and transform its productive model, the Welfare State, social justice and the territorial model.

These accounts will allocate 6.33 billion euros to foster the change in the energy model to renewable and sustainable sources and to promote measures to enhance digitalisation, particularly of SMEs.

Commitment to the regions

The government has shielded the regional financing system to avoid the fall in revenue stemming from the shutdown of activity which reduced the resources of the regional governments.

The regions will receive record funding in 2021 of 146.01 billion euros. Accordingly, they will receive 113.73 billion euros under the regional financing system, with an extraordinary transfer of 13.49 billion euros, whereby Central Government will take on part of the deficit of the regions, which will also have access to 18.79 billion euros from the EU funds.

As regards the local authorities, their participation in State taxation will amount to 19.93 billion euros, up 1.9% and they will have access to European funds in the sum of 1.48 billion euros. Furthermore, the Financing Fund for Local Authorities will have a provision of 1 billion euros. At any event, thanks to the temporary suspension of the fiscal rules, municipalities may make use of their surpluses.

Fiscal justice

At a fiscal level, the Budget helps develop a fairer and more progressive system in which those who have the most contribute more.

For example, the tax rate applicable to income over 300,000 p.a. from work under personal income tax is raised by two percentage points. And income on capital over 200,000 euros is raised by three points. The two measures will only affect 0.17% of taxpayers.

The current exemption on capital gains tax and dividends generated by subsidiaries is limited to 95% under corporate income tax, a measure that affects large companies since SMEs have this aligned over time. This is a measure already adopted in such countries as Germany and France.

The government's goal is to gradually reduce the fiscal gap that exists vis-à-vis Europe. In fact, Spain's public revenue is seven points below the EU average. Under this Budget, and in the context of the economic situation caused by the pandemic, progress is made towards a horizon with a better distributed tax system that allows powerful public policies to be introduced that have proven to be more necessary than ever.

Non official translation