Podemos Baits Spanish Billionaires With Public Contracts

Spain's Podemos Party Leader Pablo Iglesias
Spain's Podemos Party Leader Pablo Iglesias. The eruption of Podemos over the past year is part of a tectonic shift in Spain that threatens to sweep away the political and economic elite that emerged after the death of Francisco Franco 40 years ago. Photographer: Pau Barrena/Bloomberg

A Podemos government could exclude the construction firms run by Spanish billionaires from government contracts unless their owners agree to pay more taxes, party leader Pablo Iglesias said.

If Podemos wins the general election, due at the end of the year, his administration may ban companies from public contracts if their owners seek to shift their assets out of Spain to escape an increase in taxes, Iglesias, 36, said in an interview at his office at the European Parliament in Strasbourg.

“What you can’t allow is that if we introduce a just law in fiscal terms that some will leave to not pay taxes,” Iglesias said. “Maybe a government can’t prevent an individual going to live in Luxembourg, but perhaps it can say that you, sir, aren’t going to keep making so much money in my country.”

Iglesias is trying to find a way to raise more money from the rich even though European laws allow them to switch their assets and residences to lower-tax jurisdictions. Many of Spain’s richest families earned their fortunes from the construction industry by securing billions in public investment, while others were involved with former state-owned monopolies such as Telefonica SA and Iberdrola SA.

Podemos slipped to fourth place with 17.9 percent of the vote in a Cadena Ser survey published on Monday, after topping the poll with 27.5 percent in January. Prime Minister Mariano Rajoy’s People’s Party was first and the top four parties were all within the margin of error.

Iglesias is aiming to raise Spain’s tax revenue by 92 billion euros ($102 billion) to bring government income as a share of gross domestic product into line with the European Union average. He also said he’ll eliminate tax breaks for the wealthy.

Tax Shelters

Many rich Spaniards hold their wealth in investment vehicles known as Sicavs which pay 1 percent tax compared to with corporate rates of 15 percent for start-ups and 25 percent for other companies. While the Spanish government can change the tax rules on those vehicles, it can’t stop people from shifting their wealth out of the country.

Spaniards had 35.5 billion euros invested in Sicavs as of March, according to data from the investment industry group Inverco.

“It’s not acceptable that in our country while workers and small- and medium-sized businesses have to pay taxes, some avoid paying using Sicavs,” Iglesias said. “Because there are Sicavs, there are beds in the corridors of hospitals, there are fewer hospitals and fewer places for students.”

After a meteoric rise last year, Podemos has declined in the past three months as Ciudadanos, a pro-market party, grabbed support from more moderate voters. Also weakening Iglesias’s case for a sharp break from the past, Spain’s economy is growing at the fastest pace since 2007 so it will be able to create more than 500,000 jobs.

Centrist Challenge

Spaniards will vote in local elections across the nation next month, as well as in 13 of the country’s 17 regions. Catalonia, where separatists are pushing to break away from Spain, is scheduled to have elections in September while Rajoy will bid for re-election at the end of the year.

With Ciudadanos challenging Podemos’s claim to be the party of change with a more moderate set of economic policies, Iglesias is edging away from an earlier pledge to demand a restructuring of Spain’s 1 trillion euros of public debt as the decline in the euro and crude buoy the country’s economy.

“Of course, we’d have to analyze the situation,” he said. “If oil is cheap, that changes things. If there has been a general devaluation of the euro that allows you to export merchandise more easily, obviously that changes things.”

Even so, with unemployment still at 24 percent, the second-highest in the EU, Iglesias said he doesn’t agree that there’s a recovery under way.

“We are not living in an new economic cycle,” he said. “We are still in a deep depression. This isn’t an opinion, it’s what the unemployment data show.”

-- With assistance from Macarena Munoz in Madrid.

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