By David Latona

MADRID (Reuters) -Spanish lawmakers approved the government’s new tax plans, which include extending a modified temporary levy on banks by three years, in a last-minute deal with smaller parties on Thursday in the highly fragmented parliament.

The governing coalition constantly faces a balancing act as it weighs concessions to parties from across the spectrum, such as hard-left Podemos and centre-right Catalan separatists Junts.

The lower house backed the Socialist-led government’s plan by 178-171 votes.

The fiscal package’s centrepiece ensures that large Spain-based companies with an annual turnover of at least 750 million euros ($785 million) pay a minimum tax of 15% of their consolidated profits, in compliance with a European directive.

Following the bill’s passage, Prime Minister Pedro Sanchez described it as “landmark” legislation that would guarantee the disbursement of European recovery funds worth 7.2 billion euros.

In October, the European Commission sued Spain – along with Cyprus, Poland and Portugal – for failing to implement the rules designed to curb fiscal dumping by the end of 2023.

Government officials have previously said next year’s budget bill, yet to be unveiled, hinged on the package’s approval.

Spain had rolled over its 2023 spending plan after failing to pass a new budget last year, but Sanchez reiterated on Tuesday the government would eventually present the bill for 2025.

BANKING TAX

A three-year extension to the annual bank windfall tax, added to the bill’s amendments after the government clinched Junts’ support by ceding collection of the tax’s revenues to regional administrations, also got through.

Ranging between 1% and 7%, it will tax lenders’ net interest income and commissions in accordance with their lending income volumes, instead of the current fixed rate of 4.8%.

For lenders whose annual volumes surpass 5 billion euros, it sets a rate of 7%, affecting Santander, BBVA and Caixabank.

Banking associations AEB and CECA said they would take the measure, which they warned created legal uncertainty and hurt competitiveness, to court.

The Socialists were only able to pass the package after reaching a last-minute agreement with Podemos.

In exchange, they pledged to work on a permanent windfall tax on energy companies that was earlier dropped, or at least extend a temporary one by another year.

“Podemos will work to make this tax as ambitious as possible,” Podemos leader Ione Belarra said.

Utilities have warned that extending the tax would jeopardise 30 billion euros ($31.6 billion) in renewable energy investments.

($1 = 0.9548 euros)

(Reporting by David Latona, Emma Pinedo and Jesús Aguado; Editing by Inti Landauro, Ros Russell and Andrew Heavens)

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