Spain's lower house approves 2021 budget bill on first reading

The bill was approved by 188-154 votes in a deeply fragmented parliament, as various regional parties including Catalonia's pro-independence leftist Esquerra Republicana (ERC) sided with the Socialist-led coalition government.

Aimed at supporting an economic recovery after a record recession due to the COVID-19 pandemic, the budget entails record spending on health and social care and a hike in infrastructure investment. It will also help enable the distribution of billions of euros of EU rescue funds.

The bill will now go to the upper house or Senate, where it could still be amended, before returning to the lower chamber for a final vote, expected at the end of December.

Spain's tourism-dependent economy is set to contract 11.2% this year before rebounding a projected 7.2%-9.8% in 2021, while 3.9 million people are out of work. A government furlough scheme is supporting a further nearly 750,000.

The government plans to raise taxes on large companies and high earners to boost revenues by 6.8 billion euros in 2021, giving it more ammunition to spend its way out of the recession.

It secured the ERC's support after promising to harmonise wealth taxes across Spain, which would increase taxes in important regions such as Madrid despite opposition from local authorities.

Political instability had prevented previous governments from passing a full-year budget since 2016. The last spending plan approved by parliament in mid-2018 only applied to the second half of that year.

Analysts expect the budget to clear the remaining hurdles, reinforcing Prime Minister Pedro Sanchez's government that came to power in January.

"With the budget out of the way and an opposition incapable of dislodging Sanchez from power, the government's medium-term survival prospects have improved substantially," Teneo consultants' Antonio Barroso wrote in a research note.

But he said the viability of ERC's longer-term support would be tested by the Feb. 14 Catalan regional elections.

He also expected more resistance ahead from the hard-left junior coalition partners Unidas Podemos, which "could make it harder for the government to deliver a coherent set of measures to deal with the pandemic's economic fallout".