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Spanish Government rejects reviewing strict 2016 deficit targets for Autonomous Communities

Despite the fact that all the Autonomous Community governments that are not run by the People's Party (PP) requested the Spanish Executive  – run by the PP – to allow them a greater deficit in 2016 and that Spain's independent fiscal authority Airef also recommended granting regional governments greater deficit targets for next year, the Spanish Finance Minister, Cristóbal Montoro, has rejected doing so. In 2016, the Autonomous Communities will have to close their budgets with less than a 0.3% deficit, "an absurd" and "unrealistic" figure according to the Catalan Finance Minister, Andreu Mas-Colell, who was recently awarded an honorary PhD in Economics by the University of Chicago. The Catalan Government asked for a 0.88% deficit target for 2016. Besides this, next year the Catalan Executive will receive €1.2 billion that should have already been transferred by the Spanish Executive but was not, due to Montoro's tax revenue miscalculations. In addition to this, since economic activity is growing, the Spanish Government will increase the Catalan Executive's funds by €700 million each year from 2016 onwards.

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30 July 2015 09:44 AM

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ACN

Barcelona (ACN).- Despite the fact that all the Autonomous Community governments that are not run by the People's Party (PP) requested the Spanish Executive – run by the PP – to allow them a greater deficit in 2016 and that Spain's independent fiscal authority Airef also recommended granting regional governments greater deficit targets for next year, the Spanish Finance Minister, Cristóbal Montoro, has rejected doing so. In 2016, the Autonomous Communities will have to close their budgets with less than a 0.3% deficit, "an absurd" and "unrealistic" figure according to the Catalan Finance Minister, Andreu Mas-Colell, who was recently awarded an honorary PhD in Economics by the University of Chicago. After the meeting, Montoro addressed the press and replied to Mas-Colell’s words by saying "stop complaining and get to work". Besides this, next year the Catalan Executive will receive €1.2 billion that should have already been transferred by the Spanish Executive but was not, due to Montoro's tax revenue miscalculations. In addition to this, since economic activity is growing, the Spanish Government will increase the Catalan Executive's funds by €700 million each year from 2016 onwards.


Spain as a whole has been granted a 4.2% deficit by the European Commission for next year and the Spanish Government unilaterally decided to split it in such a way that it keeps almost all of this allowance for itself, setting a 3.9% target for the centrally-run administrations and a 0.3% target for the Autonomous Communities – despite the fact that they exclusively fund and manage the basic Welfare State services. The Catalan Government asked for a 0.88% deficit target for 2016, since the level of public spending cannot further be reduced without seriously damaging public services after 5 years of budget cuts.

Spanish Government uses the strict deficit targets to recentralise powers

According to the Spanish Government's plans, in 2017 the deficit allowed for the Autonomous Community government should be 0.1% and in 2018 they should not post a deficit at all (0%). The Catalan Government has been criticising these deficit targets for the last few years already, saying that they condemn the Autonomous Communities to undertake the hardest burden of the budget cuts in Spain's public sector and therefore is a strategy to recentralise powers, as has happened. By imposing such strict objectives, regional governments have to undertake drastic budget cuts and suffer the political consequences of this at the hand of the citizenry, while the Spanish Government then launches several funds to financially rescue the Autonomous Community Executives or takes some services and powers back.

In fact, recent figures continue to prove that most of the budget adjustment is being made by the Autonomous Communities. On Tuesday, the Spanish Finance Minister announced that Catalonia had a 0.66% deficit for the first 5 months of the year, very close to the 0.7% target it has to meet for 2015 in its entirety. Many other Autonomous Communities are in a similar situation and the Airef has already recommended allowing them greater levels of deficit, considering their spending responsibilities, the essential nature of the public services they manage and the strong deficit reduction efforts they have undergone during the last few years. The Autonomous Communities have borne the largest part of the spending reduction carried out in Spain, as opposed to the Spanish Government.

For instance, according to figures released yesterday by the department chaired by Cristóbal Montoro, the Spanish Government reduced its deficit by 12% during the first 6 months of the year on the figures for the same period last year. In the same six-month period, according to the data, the Catalan Government reduced its deficit by some 24%. Indeed, in the previous years, the Catalan Government had already reduced its deficit compared to the Spanish Executive by even greater levels.

The Catalan Government will receive €1.9 additional billion in 2016

Besides all this, next year the Catalan Executive will receive €1.2 billion that should have already been transferred by the Spanish Executive but was not, due to Montoro's tax revenue miscalculations. In addition to this, since economic activity is growing, the Spanish Government will increase the Catalan Executive's funds by €700 million each year from 2016 onwards.

However, despite this additional money, Catalans will continue to pay much more taxes to Madrid than the amount they get back in the form of services, investment or transfers to Catalonia's administration. In fact, for the last three decades, Catalans have been obliged to donate each year an average of 8% of Catalonia's GDP to the rest of Spain, an amount equivalent to some €16 billion per year. The Catalan Government's deficit in 2014 was about €5 billion (2.58% of Catalonia's GDP), while Catalan town halls in fact posted almost no deficit at all. If Montoro had paid in 2014 the €1.2 billion he will now pay due to his miscalculations, the Catalan Government’s deficit for last year would have been below 1.9%.

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  • Andreu Mas-Colell (left) and Cristóbal Montoro (right) on Wednesday in Madrid (by R. Pi de Cabanyes)

  • Andreu Mas-Colell (left) and Cristóbal Montoro (right) on Wednesday in Madrid (by R. Pi de Cabanyes)