Spanish Prime Minister Pedro Sanchez has called a snap election for July 23 after his Socialist party suffered heavy losses in regional and local elections on Sunday.

One outcome of a potential victory for his right-wing People’s Party opponents could be more business-friendly policies and moves to trim taxes, said Lluis Orriols, a professor of political science at Madrid’s Carlos III University. “The coordinates of a PP government would tend to point to less fiscal pressure,” he said.

Here are some of the issues investors will be keeping a close eye on as the country prepares for what promises to be a hard-fought political contest.

Windfall Tax

Sanchez slapped a two-year windfall tax on banks and energy companies last year to help pay for a slew of measures to ease the impact of soaring prices on households. He’s since signaled that the levy could become permanent. Managers of the country’s main lenders have publicly criticized the charge, saying it’s unfair. Banco Santander SA paid €224 million ($239 million) in the first quarter in charges for the tax, while CaixaBank SA forked out €373 million.

Wealth Levy

Spain is also dipping into the pockets of the wealthiest Spaniards to help fund Sanchez’s response to soaring living costs afflicting the wider population. Those with wealth greater than €3 million will have to pay a “temporary tax of solidarity of large fortunes” rising to as much as 3.5% under the levy designed to be place for two years.

Bonds

With Spain’s growth already outperforming most of its European peers this year, bond strategists don’t see much that alarms them on the economic policy front. One issue they would watch out for is an outbreak of fresh turmoil caused by the Catalan independence issue in the event of a People’s Party victory, with Fitch Ratings highlighting a any flare-up in tensions as a potential concern.

“Overall, however, the shift of government from center-left supported by far-left to center-right supported by far-right might be a small positive for Bonos due to implications of more fiscal prudence,” Citigroup Inc. strategists including Aman Bansal wrote in a research note.

Housing

Sanchez made housing one of the cornerstones of his regional election pitch, with announcements including residential construction projects and allocation of land for social housing designed to show he’s sensitive to the issue of rising hurdles to home-ownership. Earlier this month, the government offered to underwrite a chunk of the mortgages taken out by young Spaniards on lower incomes by having the state development bank ICO guarantee as much as 20% of loans to buy a houses

Indra

Defense firm Indra Sistemas SA has been at the center of one of the most divisive recent governance disputes to roil corporate Spain. Management shuffles and accusations from board members of interference have sparked months of turmoil for a company in which the government owns a 25% stake. Spain’s vision for Indra is to make it a national defense champion on a par with peers elsewhere in Europe, such as Italy and France.

Takeover Shield

Since 2020, Spain has had the power to block takeovers or acquisitions of large stakes of firms that it deems strategic, a rule that was put in place to shield companies after equity values plummeted during the pandemic.

Author: Macarena Muñoz