Catalonia has transferred 8% of its GDP every year since 1986 for services and investments in the rest of Spain

In 2009, Catalonia financed € 16.41 billion of services and investments in the rest of Spain, which represents 8.4% of Catalonia’s GDP. According to the Catalan Finance Minister, Andreu Mas-Colell, out of every euro paid by Catalan citizens with their taxes, 43 cent is invested outside of Catalonia. The Catalan Government released the latest data regarding the fiscal relationship between Catalonia and Spain, corresponding to the 2006-2009 period, known as “the fiscal balances”. Mas-Colell underlined the “fiscal deficit” Catalonia suffers from, which is “unsustainable” and harms Catalan citizens and the country’s economy.

CNA / Gaspar Pericay Coll

March 13, 2012 09:57 PM

Barcelona (ACN).- In 2009, Catalonia gave € 16.41 billion to pay for services provided and investments made in the rest of Spain. This represented 8.4% of the Catalan GDP that year, according to the Catalan Government, which released the data of the “fiscal balances” for the period 2006-2009 on Monday. Furthermore, out of every euro paid by Catalan taxpayers, 43 cent was spent outside Catalonia. The Catalan Finance Minister, Andreu Mas-Colell explained that since 1986 Catalonia has given much more money than it has received from the Spanish Government for services, investments and funds. On average, Catalonia has transferred 8% of its GDP every year over the last 26 as solidarity with the rest of Spain. Mas-Colell denounced that this situation is “unsustainable”, as no country can give away 8% of its GDP every year without having its economy seriously affected and putting the services offered to citizens under constant stress. Furthermore, if the “fiscal deficit” was halved, a proposal that is backed by 76% of Catalan citizens according to the latest polls, the Catalan Government would have a budget surplus and cutbacks would not have been necessary. In 2011, the Catalan Government had an official deficit of 3.72% of Catalonia’s GDP in 2011, while Catalonia gives away around 8% of its GDP every year.

On Monday the Catalan Ministry for the Economy and Knowledge, Andreu Mas-Colell, presented the latest data regarding the fiscal relationship between Catalonia and Spain known as the “fiscal balances”. The latest “fiscal balances” corresponded to 2005. Mas-Colell presented those of the period 2006-2009. Every year, Catalonia has given more money to the rest of Spain than what it receives, as a territory richer than the average and following the solidarity principle. This is known as the “fiscal deficit”. However, Catalonia’s “fiscal deficit” is very high and far from “sustainable”, according to the Catalan Finance Minister. In 2009, Catalonia had a fiscal deficit of 8.4% of its GDP, which represented € 16.409 billion, a similar figure over the 4-year period.

Catalonia gives more than €16 billions away every year

This data has been calculated with the money flow method, which looks at where the money is invested in a given territory, while taking into account the proportion of general services as well. The figures are supposed to be more accurate than the other possible calculation method, in particular in times of economic crisis. According to Mas-Colell, this is the most reliable way of calculating the fiscal deficit. The other way of calculating the fiscal deficit is through the so-called benefit flow, which considers that an investment made in another Autonomous Community also has an impact on Catalonia’s economy. That calculation method Mas-Colell said was “less solid as it needs more hypothesis and approximations”. According to the benefit flow, Catalonia’s fiscal deficit in 2009 was 5.8% (8.4% according to the money flow), and the average of the 2006-2009 period was 5.73%.

Out of every euro from taxes raised in Catalonia, 43 cent are spent elsewhere

During the period 2006-2009, Catalonia provided 19.49% of the financial resources of the Spanish Government and the Social Security Treasury, which pays for pensions and unemployment benefits. However, it only received 14.03% of their payments in return. Furthermore, if the individual benefits are excluded from the calculation (pensions and unemployment benefits), Catalonia only received 11.17% of the funds. This meant that out of every euro paid by Catalan citizens with their taxes, 43 cent is spent outside Catalonia. “Where the most obvious bias is made by the Spanish Government is regarding the discretional spending, that not is directly allocated to people, but to territories”, explained Mas-Colell.

Catalonia has given away 8% of its GDP since 1986

Furthermore, Mas-Colell also combined the 2006-2009 data with the earliest possible figures allowing rigorous comparisons, dating from 1986. Over the entire period with reliable data, Catalonia lost an average of 8% of its GDP as “solidarity” with the rest of Spain every year, paying many billons each year for services delivered to citizens living outside of Catalonia and investments made to the rest of Spain. During those years, the fiscal deficit has been fluctuating, reaching 10% of Catalonia’s GDP in 1993 and 2002, and never being lower than 6.7% (in 1986, 1998 and 2001). Mas-Colell, who was a former Harvard University professor, mentioned the case of abusive taxes on colonies, paid in the past, as they corresponded to more than 10% of their wealth.

A new fiscal agreement?

The Catalan Finance Minister emphasised the need to reach a new fiscal agreement for Catalonia, significantly reducing its fiscal deficit. Mas-Colell refused to confirm which level of fiscal deficit would be sustainable and acceptable by the Catalan Government, although some governmental sources are talking about 4%. If it were reduced to that percentage, the current fiscal deficit would be halved. Catalonia would still contribute to Spain’s territorial cohesion with around € 8 billion but it would also have another € 8 billion to completely eliminate its public deficit, reduce its debt and update services and infrastructure. In fact, a wide majority of Catalan citizens (76%) would support this proposal according to the latest opinion polls, combining Catalonia’s financial sustainability and the needed solidarity among territories. Currently, a growing number of Catalan citizens think that the current fiscal deficit harms Catalonia, including its poorest citizens, and therefore reflects the lack of solidarity from the rest of Spain.

The current fiscal agreement came into effect in 2009. Mas-Colell said that it did not lead to a significant reduction in the fiscal deficit, although it did not decrease. However, the current fiscal agreement corrected an unfair element from the previous funding scheme. Now, the model respects the order principle, which means that if Catalonia is above the Spanish average, after fiscal redistribution unilaterally decided by the Spanish Government, it needs to occupy the same position in the ranking and in any case being below the average, as happened in the 1980s, 1990s, and most of the 2000s. The German Constitutional Court had a similar principle guaranteed regarding the funding of the Länder.