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Catalonia will not have to pay interest on Spanish Government loans from 2012 to 2015

The Spanish Finance Minister, Cristóbal Montoro, has confirmed a new fiscal measure to increase the Autonomous Communities’ revenue, benefiting the Catalan Government as well. After the Council on Fiscal and Financial Policies (CPFF) held on Tuesday evening, Montoro confirmed that interest rates will be set at 0% for the loans given to the regional governments since 2012 through the Liquidity Fund (FLA). The measure will also be in place for 2015. However, the Autonomous Communities that have already met the deficit targets will also be granted a 0% rate for 2016 and 2017. The Catalan Government welcomes the measure but is sceptical about its details. The Catalan Finance Minister, Andreu Mas-Colell, demanded an entirely new funding scheme, since the current one expired a year ago. Montoro is not renewing the inter-territorial funding scheme and instead is using this loan system, which obliges regional governments to return the transferred funds.

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24 December 2014 01:21 PM

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ACN

Madrid (ACN).- The Spanish Finance Minister, Cristóbal Montoro, has confirmed a new fiscal measure to increase the Autonomous Communities’ revenue, which will also benefit the Catalan Government. After the Council on Fiscal and Financial Policies (CPFF) was finally held on Tuesday evening, Montoro confirmed that interest rates will be set at 0% for the loans given to the regional governments since 2012 through the Liquidity Fund (FLA). The measure will also be in place for the 2015 loans. However, the Autonomous Communities that have already met the deficit targets unilaterally imposed by the Spanish Government will also be granted a 0% rate for 2016 and 2017. This last group already contains Madrid, Galicia, Asturias, Castilla-y-León, Aragon, the Basque Country and Navarra. Catalonia could join them if it meets the strict deficit targets for next year. In addition, the first group of regional governments, in which Catalonia is not included, will be allowed to keep the amounts resulting from the 2008 and 2009 funding scheme’s liquidations, which should have been returned to the Spanish Executive otherwise. Furthermore, a Social Fund is created, by which the Autonomous Communities will be granted resources to pay back their debts to municipalities and local governments used to fund social services until 31 December 2014. Montoro has justified the new measures saying that since the overall economic situation has improved, there are more resources available and the Spanish Executive gets cheaper loans on the international financial markets.


The Catalan Government welcomes the 0% interest rate measure but is sceptical about its exact implementation, since it is far from granting all the revenue needed for next year. In fact, the Catalan Finance Minister, Andreu Mas-Colell, demanded an entirely new funding scheme since the current one legally expired on 1 January, 2014. Mas-Colell said that the new measures are “positive” but are only “patches”. With the loan system and their interest rates higher than market prices, the Spanish Government has been making money out of them, while it recentralises powers and has a higher control on the Autonomous Communities’ budgets and fiscal capacities.

The Catalan Government demands a new funding scheme

The Catalan Finance Minister, Andreu Mas-Colell, said that he still has to calculate the new measure’s exact repercussions on the 2015 budget, taking into account its exact details. However, he estimated an additional revenue of several “tens or hundreds of millions” but far from “thousands”, as some members of the Spanish nationalist People’s Party (PP) have claimed. In fact, Madrid’s regional government complained that Catalonia will benefit greatly from the new measure and will receive €3.7 additional billion thanks to it, while they would only get an additional €90 million. Mas-Colell vehemently rejected talk of such an enormous amount and accused Madrid’s regional government of playing an “irresponsible” and “frivolous” game, making out “grievances” while the exact measures have just been announced and exact calculations have not yet been made. Once again, the Catalan Finance Minister insisted on the need to set a new inter-territorial funding scheme, better adapted to the economic reality and the spending and political responsibilities of the Autonomous Communities.

A new funding scheme will not be approved until 2016, at the soonest

The Spanish Government has ruled out on many occasions renewing the inter-territorial funding scheme, despite it having already expired a year ago. In fact, a few weeks ago, Montoro stated that negotiations for a new model would not start until early 2016 at the soonest, which means that a new funding scheme might only be ready by late 2016 at the earliest. Montoro has been saying since late 2012 that there is not enough consensus to reform the current scheme because of a lack of public resources due to the economic crisis and ruled out the possibility of changing the model, despite it expiring in January 2014. However, it was precisely the effects of the economic crisis which were making the current system unsustainable as it was under-budgeting the regional governments, which exclusively manage and fund the main Welfare State policies, such as healthcare, education and social affairs.

Instead, the Spanish Government is using the FLA loan system, which obliges regional governments to return the funds transferred and enables Montoro to have greater control over their finances. In fact, this loan system reduces the autonomy of regional governments and reduces their fiscal capacity, since the additional money it brings is money from the Spanish Executive, which imposes strict conditions. Therefore, with this set of loans, the Spanish Government, chaired by Mariano Rajoy, is recentralising powers. In this way, Rajoy and Montoro are condemning the Autonomous Communities to continue to increase their amount of debt in the coming months, instead of honouring the current legislation and approving a new funding scheme adapted to the effects of the economic crisis.

Catalan Government is under-budgeted, while Catalonia gives away 8.1% of its GDP

The old inter-territorial funding scheme that already expired was designed before the economic crisis and it is not adapted to it effects. The Autonomous Communities, which fund the basic Welfare State services such as healthcare and education, are under-budgeted within this scheme. In addition, the Spanish Government is putting on their shoulders the main budget adjustments in Spain made to meet the deficit targets imposed by the European Union. The main austerity measures and budget cuts are being implemented by the Autonomous Communities and not by the Spanish Government, despite the regional executives only managing around a third of Spain’s entire public money and exclusively funding the basic Welfare State policies.

On top of this, Catalonia is particularly under-budgeted, receiving less money per capita than poorer Autonomous Communities to fund its public services and economic infrastructure. Catalonia is under-budgeted despite it having the highest taxes in Spain and it has been transferring each year an average of 8.1% of its GDP to the rest of Spain during the last 27 years at least, an annual transfer of some €16.5 billion, or the equivalent of 6 entire Marshall Plans. Catalan taxpayers are giving away around 43% of their annual taxes, which are spent in other parts of Spain and never come back to pay for services and infrastructure in Catalonia.

The only study on the topic by the Spanish Government, published in 2008 with data from the year 2005 only, showed that Catalonia transferred between 6.4% and 8.7% of its GDP (depending on the calculation formula) to the rest of Spain that year. This means a transfer of between €13 billion and €17.5 billion in a single year. Around 75% of Catalan society wants to change this situation and reduce these fiscal transfers, while keeping certain degrees of inter-territorial solidarity with poorer regions. In fact, the Catalan Government proposed a new Fiscal Agreement between Catalonia and the Spanish Executive in mid 2012, which would halve the Catalan taxpayers’ contributions, ensuring the correct funding of public services in Catalonia and funds for poorer regions at the same time. The Spanish Government rejected even talking about this and firmly closed the door on any possible negotiations. 

This fiscal deficit seriously damages Catalonia’s public services and the competitiveness of its economy, particularly damaging the working and middle classes, as well as private companies. Catalonia has been asking for a fairer fiscal deal for decades, negotiating small changes in the system that did little to solve the situation, partly due to the Spanish Government’s lack of transparency while allocating the definitive resources and its lack of respect for legal agreements. In fact, the Catalan Government has included in its 2015 budget €2.15 billion in revenue that should come from debts the Spanish Executive is not actually paying back (some of them dating from 2008).

The Spanish Government is recentralising powers and reducing Catalonia’s self-rule

So far, since 2012, the Catalan Government has received €32 billion from the FLA and the Service Provider Fund, the equivalent of some €10.5 billion per year on average. This mechanism has resulted in a significant increase in Catalonia’s public debt. By not modifying the funding scheme, the Spanish Government obliges Catalonia to ask for loans and increase its debt, while powers are being recentralised. The Catalan Government’s entire spending for 2015 will amount to some €22.5 billion and 71% of this will go towards paying for the public healthcare system, schooling and university education, and social protection, which have gone through drastic budgets cuts since 2010. As well as this, the Catalan Government exclusively manages prisons, policing (with the exception of border control, anti-terrorism and international crime), judicial offices, agricultural policies, employment promotion and cultural policies, among others.

Catalonia has reduced 15% of Spain’s total deficit, despite only managing 5.5% of total public money

Furthermore, a few weeks ago, Mas-Colell emphasised the fact that the Catalan Government has undertaken the most important budget adjustment in Spain since 2010, Catalonia had a €9.1 billion deficit in 2010, representing 4.53% of its GDP, and in 2015 it will post a €1.44 billion deficit, representing a 0.7% deficit. This represents a deficit reduction of 84.2%, equivalent to €7.66 billion. Moreover, if the payment of financial interests were to be left out of the equation, Catalonia would actually post a €273 million budget surplus for 2015, representing a 0.13% surplus in relation to its GDP. In 2010, such a deficit without financial interest reached €8.18 billion, the equivalent of 4.08% of Catalonia’s GDP. Therefore, in 5 years, the Catalan Government will have reduced structural deficit by 103%, transforming it into a €273 million budget surplus.

In addition, the Catalan Government has been directly responsible for 15.12% of Spain's total deficit reduction since 2010, despite it only managing 5.49% of all the country's public money. The Spanish Government reduced its spending per capita by €113 between 2010 and 2013, while the Catalan Executive reduced it by €694 in the same period. In fact, the Catalan Government’s spending decreased by €5.24 billion in that period, while that of the entire Spanish Government decreased by only €5.28 billion. The Spanish Government is responsible for more than 50% of Spain’s total public spending, despite it not implementing the basic Welfare State policies, with the exception of pensions and unemployment benefits. 

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  • Mas-Colell (left) and Montoro (right) on Tuesday evening (by R. Pi de Cabanyes)

  • Mas-Colell (left) and Montoro (right) on Tuesday evening (by R. Pi de Cabanyes)