Spain’s Socialists and Sumar agree windfall tax extension in coalition deal

MADRID (Reuters) – Spain’s Socialist Party and the hard-left Sumar on Tuesday agreed policies that included expanding a windfall tax for banks and large energy companies as they attempt to form the basis of a coalition government.

The deal also includes a proposal to reduce working hours while preserving the same pay. Their potential coalition still needs to win the backing of other parties in parliament.

The partners, who currently run Spain’s caretaker government, agreed all companies would be taxed an effective 15% rate on their accounting profit, the leader of the leftist coalition Sumar, Yolanda Diaz, said in a speech in Madrid.

Companies currently pay between 23% and 25% on underlying profit, which seeks to eliminate the impact of non-recurring items.

“We will review the levies on banks and energy companies with a view to adjusting and maintaining them beyond their current period of application,” the parties said in the agreement.

Investors have been waiting since the inconclusive election in July to see if there would be a deal to extend a two-year, 4.8% levy approved in December on banks’ net interest income and net commissions above 800 million euros ($880 million).

Banking and some power companies’ shares fell after Tuesday’s announcement, with Endesa down 2.6% while domestic lender Sabadell declined 2.3%.

For energy companies with a turnover of at least 1 billion euros, excluding the domestic regulated business and foreign operations, the rate is 1.2%.

The coalition deal also proposes reducing the official working week to 37.5 hours from the current cap of 40 hours.

CEOE, Spain’s main employers’ association, said that it had not yet read the details, but that the deal would have a negative impact on businesses, especially small and medium-sized enterprises (SMEs), the self-employed, and employment.

The parties also said they would revise the targets for emission reductions upwards, and seek to reduce the volume of short-haul domestic air travel, encouraging people to travel by train on short journeys.

“This governing deal for a four-year legislative term will allow our country to continue growing in a sustainable manner and with quality employment,” the parties said in a joint statement.

While support from Sumar’s 31 lower-house lawmakers is crucial, it is not enough to secure the premiership for Sanchez. He still needs the backing of Catalan separatists, who are demanding an amnesty law to mass pardon people involved in the region’s failed independence bid of 2017.

If the Socialists and Catalan pro-independence parties fail to reach an agreement, the country will go to another election in January in which voters could hand a centre and far-right coalition the absolute majority it narrowly missed out on in the July vote.

(Reporting by David Latona, Belén Carreño, Emma Pinedo and Jesus Aguado; Writing by Charlie Devereux; Editing by Ed Osmond, Aislinn Laing and Deborah Kyvrikosaios)