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Catalan Finance Minister rejects €3.3 billion budget cut imposed by Spanish Government in 2015

Andreu Mas-Colell, the Catalan Government's Minister for Finance, emphasised that he cannot implement further budget cuts without "severely deteriorating" basic public services. After Catalonia's ministerial spending having dropped by an average of 20.3% with continuous budget cuts since 2010, public spending reduction has reached its "limit", argued Mas-Colell. The Catalan Government has exclusive control over public healthcare, education and social policies, while most of its revenue depends on transfers from the the Spanish Executive, which collects the taxes paid by Catalan citizens. Once again, Mas-Colell accused the Spanish Government of "strangling" Catalonia's finances by recentralising power. He announced he will not carry out an additional €3.3 billion budget reduction in 2015 and asked Madrid to honour pending debts, modify the too-strict deficit targets and review Catalonia's funding scheme.

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25 September 2014 09:53 PM

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ACN

Barcelona (ACN).- Andreu Mas-Colell, the Catalan Government's Minister for Finance, emphasised on Thursday that he cannot implement further budget cuts in 2015 without "severely deteriorating" basic public services. After the Catalan Government dropped ministerial spending by an average of 20.3% with continuous budget cuts since 2010, public spending reduction has reached its "limit", argued Mas-Colell. The Catalan Government has exclusive control over public healthcare, education and social policies, while most of its revenue depends on transfers from the Spanish Executive, which collects the taxes paid by Catalan citizens and therefore controls the flow of money. Once again, Mas-Colell accused the Spanish Government of "strangling" Catalonia's finances with a series of measures unilaterally adopted in the last few years that recentralise power and force the Catalan Government to increase spending while its revenue is not higher. Furthermore, the Spanish Government is not honouring the legal obligation to pay pending debts and to modify Catalonia's funding scheme, which had to be reviewed in 2013 in order to have the new one in place by the 1st of January 2014, according to the current legislation. Within this framework, the Spanish Government is unilaterally imposing a 0.7% deficit target on the Catalan Executive for 2015, which means that with the currently foreseen revenue (which does not take into account the Spanish Government's pending debts), Mas-Colell is missing €3.3 billion to balance the budget. Therefore, he asked Madrid to lift the too-strict deficit target and to return a greater amount of money from the taxes collected each year in Catalonia, as well as to honour pending debts.


The Catalan Finance Minister stressed that he will not carry out an additional €3.3 billion budget reduction in 2015 as it will "surely" damage basic public services, which have already gone through cross-cutting austerity adjustments since 2010. 70% of the Catalan Government's budget goes on healthcare, education and social policies, while the rest pays for employment policies, economic promotion, scientific research, police, prisons, justice administration, culture, public media, public transportation, public works, agriculture policies and town hall transfers, among others. After 4 years of budget cuts and with tax levels being particularly high, there is not a lot of room for reducing spending or for increasing regular revenue from taxation. In addition, the Catalan Government already adopted exceptional measures such as selling assets and privatising some services to increase revenue in the past few years, which cannot be repeated in 2015, as Mas-Colell stressed.

The Finance Minister explained that the Catalan Government's foreseen spending for 2015 will be around €22.5 billion although he would like to increase it until €23 billion in order to restore the public employees' full salary, which has been 7% lower for the last 3 years in Catalonia while in the rest of Spain such a measure was only adopted for 1 or 2 years. However, the expected revenue will be €19.7 billion, without taking into account the Spanish Government's pending debts. Therefore, Mas-Colell is missing €3.3 billion to balance the budget. However, this unbalanced result between revenue and spending happens in a context of an enormous fiscal deficit.

Catalans are giving away between €13.5 billion and €17.5 billion each year

Several studies, including the most serious one made by the Spanish Government, report that Catalonia's annual fiscal deficit is between 6.5% and 8.5% of its GDP (depending on the calculation used for the formula). The fiscal deficit shows a negative difference between the money returned by the Spanish Government in the form of investments, services or funds for Catalan public bodies or citizens and the money paid by Catalan taxpayers. A fiscal deficit means that money from Catalan citizens and companies goes to poorer regions in the rest of Spain to pay for services, investments and grants.

The problem comes when Catalan public services are under-budgeted while those of poorer regions are in a better shape and investment in infrastructure is higher. This particularly affects Catalonia's middle-class and those less-privileged, as well as the competitiveness of the Catalan economy, which is one of the main economic engines in southern Europe. On top of this, while the Spanish Government or the regional governments of poorer Autonomous Communities are reducing taxes or paying the full salaries of public employees, the Catalan Government is raising taxes, undertaking some of the most ambitious budget cuts in the entire country and reducing public salaries because it lacks revenue, which is totally controlled by the Spanish Government using not entirely transparent criteria.

If Catalonia's fiscal contribution was reduced, the Catalan Government would have budget surplus

Catalans are obliged by the Spanish Government to give away between €13.5 billion and €17.5 billion each year. Such a high level of transfers has been going on at least since 1986, according to published studies. Altogether represent 6 times the amount of the entire Marshall Plan that the US gave for the reconstruction of the entire Europe after World War II. Catalonia's high amounts of inter-territorial transfers are among the highest in Europe, representing much more than wealthy German Lander or French regions. If Catalonia's solidarity contribution was halved, similar to other European wealthy regions, the Catalan Government would have a budget surplus and public services cuts would not have been needed. Instead of these, the Catalan Government is now missing €3.3 billion and has public services on the verge of being seriously damaged, public services of worst quality than in poorer areas of Spain.

In this situation, taking into account the deficit reduction imposed by the Spanish Government, the pending debts and the measures unilaterally adopted in Madrid that have increased spending and reduced revenue in Catalonia, Mas-Colell asked the Spanish Government to modify the 0.7% deficit target, allowing the Catalan Government to generate a bit more debt, and to honour pending debts and review Catalonia's funding scheme, which are legal obligations that the Spanish Executive does not respect.

Mas-Colell accuses the Spanish Government of "strangling" Catalonia

"We are in an economic situation that is improving and there is a way out [from the economic crisis]" stated Mas-Colell, who is a former Economics professor from Harvard and Berkley. "However, instead, Catalonia's public finances and the fiscal situation of the Catalan Government are worsening", he immediately added as a paradox. The reason for this is that "the Spanish State is trying to cancel Catalonia's self-government in all the areas and to implement a policy of strangulation", beginning with financial strangulation, he said. The idea is to show that the Catalan Government cannot manage its public services and having Madrid directly take their control, or at least the control of an important part of them. Therefore, according to Mas-Colell, the Spanish Government is using the economic crisis "as the perfect excuse" to recentralise power and reduce Catalonia's self-rule by using the tight control on the Catalan Executive's finances. This goes totally against the decentralisation spirit of the 1978 Constitution, based on the recognition of Catalonia's self-government.

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  • The Catalan Finance Minister, former Harvard and Berkeley Professor, Andreu Mas-Colell, talking in Girona on Thursday (by X. Pi)

  • The Catalan Finance Minister, former Harvard and Berkeley Professor, Andreu Mas-Colell, talking in Girona on Thursday (by X. Pi)