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Catalan Government posts 2.13% deficit for 2014, higher than 1% target, due to lack of revenue

The Catalan Finance Minister, Andreu Mas-Colell, has announced a €4.23 billion deficit for 2014, representing a 2.13% deficit, significantly higher than the 1% target imposed by the Spanish Government. Mas-Colell stressed that spending went as planned, but revenue was far from the expected result, obtaining €1.91 billion less than expected, since the Spanish Government reduced the Catalan Executive's funds by €600 million. In addition, it has not shared with the Autonomous Communities all the money from the revenue increase of 2014 which came due to the economic recovery. "We have not seen a single euro of this additional revenue", complained Mas-Colell, who estimated that €900 million of this money should have gone to Catalonia. In addition, he has always argued that a 1% deficit for 2014 was not realistic and that it was "illegal", after filing a complaint to the Supreme Court.

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19 March 2015 10:32 PM

by

ACN

Barcelona (ACN).- The Catalan Finance Minister, Andreu Mas-Colell, has announced a €4.23 billion deficit for 2014, representing 2.13% of Catalonia's GDP. The figure is significantly higher than the 1% target unilaterally imposed by the Spanish Government for last year. Mas-Colell explained that spending went as planned, with a minimal deviation of €47 million (which is less than 0.002% of the Catalan Government's total spending). However, revenue was far from the expected result, obtaining €1.91 billion less than expected, since the Spanish Government reduced the Catalan Executive's funds for 2014 by €602 million compared to 2013. On top of this, the Spanish Government has kept all the money from the revenue increase of 2014 which came due to the economic recovery, without sharing it with the Autonomous Communities. "We have not seen a single euro of this additional revenue", complained Mas-Colell. The Catalan Finance Minister estimated that €900 million of these additional funds should have gone to Catalonia. The rest of the missing revenue is due to the fact that the Catalan Executive could not complete all the asset sales and privatisation processes it had budgeted for last year.


The initial 1% deficit was not realistic and "illegal"

In addition, Mas-Colell has always argued that a 1% deficit for 2014 was not realistic, taking into account that the Autonomous Communities exclusively fund and manage the main basic public services such as healthcare and education. On top of this, he considered it to be "illegal", since it does not respect the Budget Stability Law and the proportionality between spending responsibilities and the amount of deficit allowed. The Autonomous Community governments, such as that of Catalonia, manage around a third of Spain's entire public money. However, the Spanish Government imposed strict deficit targets, keeping 85% of the deficit allowed by the European Union for itself and only 15% of it for the Autonomous Communities.

Mas-Colell argued that in 2015, following such principles, the deficit allowed for the Catalan Government should have been 2.24%, and not 1%. By imposing such deficit targets, the Spanish Government is obliging the Autonomous Community governments to reduce public services or give up some powers, which are then controlled by the Spanish Executive, in a veiled recentralisation strategy.

Catalan Government is under-budgeted

Catalan representatives have been warning for decades that the Catalan Government is under-budgeted, taking into account the public services it manages and all the taxes collected in Catalonia. "We have a serious problem regarding revenue", highlighted Mas-Colell. Between 80% and 90% of the Catalan Government's revenue depends on the inter-territorial fiscal scheme which is totally controlled by the Spanish Government. This system expired in January 2014, but the Spanish Government refuses to review it and a new system is not expected to be in place until 2016 at the earliest. The old system was designed before the economic crisis and the Spanish Government has not adapted to its effects, despite the fact that the Autonomous Communities manage and fund the basic public services, as well the main Welfare State pillars, such as public healthcare and education.

Instead of adapting the system, the Spanish Government has launched a series of new funds, such as the Liquidity Fund for the Autonomous Communities (FLA), which give loans to regional governments (which have to be returned) instead of guaranteeing them their own revenue. This mechanism increases the Spanish Government's fiscal control on the Autonomous Communities and recentralises powers. In addition, with this system, the Spanish Government send the funds almost month by month, making the regional governments always have to wait for Madrid's transfer to be able to make the needed payments. This mechanism is far from innocuous and dramatically reduces the actual autonomy of regional governments, recognised in the Constitution.

The Spanish Government is "asphyxiating" the Catalan Executive

According to Mas-Colell, the Spanish Government is "asphyxiating the finances" of the Autonomous Communities. "If they wanted to asphyxiate the Catalan Government, they could do it tomorrow", said Mas-Colell, but "let's see if they dare to do so!", he immediately added. "The main problem is that Madrid has fallen in love with the FLA", because with it they control the Catalan Government's finances, and now they do not want to change the inter-territorial fiscal scheme, despite the old one having expired more than a year ago.

On top of this, Madrid does not always use transparent criteria and with this system, the Catalan Government receives fewer funds than those it should get. In addition, Catalonia has suffered from decades of continuous fiscal deficit, which seriously damages its economy and its public services, affecting the competitiveness of industries and families in need.

In fact, Catalans have been giving away an average of 8% of Catalonia's GDP (equivalent to some €15.5 billion using 2014 money) each year since 1986, which is money that has been spent in other parts of Spain. In 2008, the Spanish Government recognised that Catalonia had a fiscal deficit of between 6.38% and 8.7% of its GDP in 2005 (depending on the formula used), which were figures similar to those issued by the Catalan Executive. It is the only time such figures have been released by the Spanish Government, with the exception of last July, when the Spanish Finance Ministry published the results for 2011 using a totally different formula created for the occasion and after delaying the figures' publication for months due to the great controversy the issue generated.

According to Madrid's new calculations, Catalans gave away €8.46 billion in 2011, representing 4.35% of Catalonia's GDP. However, according to the formulas that have been used for years and are in line with international standards, Catalonia's fiscal deficit was between €15.01 billion and €11.09 billion in that year, lower than the average of the last decades but significantly higher than the Spanish Government's new calculations.

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  • The Catalan Finance Minister, Andreu Mas-Colell, at the Catalan Parliament a few weeks ago (by ACN)

  • The Catalan Finance Minister, Andreu Mas-Colell, at the Catalan Parliament a few weeks ago (by ACN)