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The Catalan Finance Minister stated it is "impossible" to draft a budget with a deficit of 0.7%

Andreu Mas-Colell, the Catalan Government’s Finance Minister, emphasised that a 0.7% deficit objective means implementing an additional budget adjustment of €4.4 billion. This amount represents around 15% of the Catalan Executive’s budget for last year, which had already been reduced over the previous two years. Furthermore, expected revenue will decrease by 1% despite increases in tax, debt interest will grow by €300 million and the amount of spread payments will also increase by €150 million. In such circumstances a €4.4 billion one-year adjustment would blow up public services in Catalonia. Therefore, Mas-Colell urged the Spanish Government to find an agreement, as otherwise no one wants PM Rajoy to act “as the viceroy of Catalonia”.

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11 March 2013 11:11 PM

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ACN

Barcelona (ACN).- On Monday, the Catalan Finance Minister, Andreu Mas-Colell, insisted that he cannot prepare this year\u2019s budget with a deficit target of 0.7%. It is \u201Cimpossible\u201D he emphatically stated in front of economic and business participants at a conference in Barcelona. Mas-Colell, who is one of the world\u2019s most respected mathematical economists, explained that a 0.7% budget means the implementation of an additional adjustment of \u20AC4.4 billion. This amount represents around 15% of the Catalan Executive\u2019s budget for last year, which had already been reduced for the previous two years. Therefore, Mas-Colell urged the Spanish Government to find an agreement in order to modify the 0.7% deficit target and make it in line with the Catalan Executive\u2019s spending responsibilities and management of basic public services. According to Mas-Colell, an agreement has to be found, if the Spanish Government does not want to act \u201Cas the viceroy of Catalonia\u201D, which would de facto eliminate Catalonia\u2019s autonomy and would blow up Spain\u2019s constitutional agreement that was reached just after Franco\u2019s death. The Spanish Government has already stated that it will not review the 0.7% deficit until it knows if the European Union will allow Spain\u2019s public sector a greater deficit target for 2013, which is currently set at 4.5%. Mas-Colell announced that, in order to wait for the Spanish Government\u2019s decision, he will not present a budget proposal until Brussels has officially announced whether it will increase Spain\u2019s deficit level. In addition, Mas-Colell has not ruled out the possibility of extending last year\u2019s budget, although it would be a poor solution since revenue in 2013 is expected to drop and spending will increase. Therefore, the Catalan Finance Minister admitted that the measures adopted in 2012 will not be enough to keep the deficit at last year\u2019s level.


Mas-Colell explained that in 2013 the expected revenue will decrease by 1% despite increases in tax and the inclusion of some funds that in previous years the Spanish Government refused to pay despite being legally obliged to do so. In addition, the Catalan Government\u2019s debt interest will grow by \u20AC300 million in 2013 and the amount of spread payments will also increase by \u20AC150 million. These payments \u201Care heavy as a tombstone\u201D, he stated. In addition, Mas-Colell noted that in 2013 the Catalan Government will no longer have the extraordinary revenue from the sales of the management of the public companies Tabasa (highways), Túnel del Cadí (highways) and Aigües Ter-Llobregat (water management). Selling this commercial exploitation meant \u20AC1.34 billion for the Catalan Government\u2019s pocket, which is no longer available.

In such circumstances a \u20AC4.4-billion adjustment to be made in a single year would have to be mainly implemented over the current public services. This would blow up the Welfare State in Catalonia, one of Spain\u2019s richest areas which has been a net contributor to the European Union for decades. The Catalan Government has very little room for manoeuvre for such an adjustment since healthcare, education and social affairs already represent 70% of the Catalan budget in 2012. With the remaining 30% the Catalan Executive has to pay for financial interest, police, prisons, judicial offices, employment policies, business promotion activities, scientific research, public transportation, water and waste management, environmental policies, agricultural subsidies, cultural facilities, public media, and local government grants, among other items.

The Spanish Government is Catalonia\u2019s only bank right now

The Catalan Finance Minister underlined the fact that, in the current circumstances, the Spanish Government is the only entity lending money to the Catalan Executive. Considering the high financial interest which the Autonomous Communities had to pay in the international financial markets, the Spanish Government restricted their capacity to access private credit and it launched the Liquidity Fund for the Autonomous Communities (FLA) to act as a public bank for them. With this, the Spanish Government took control over the regional government\u2019s debt levels but also the cash flow, using it as a tool for political control. In fact, Mas-Colell accused the Spanish Government of carrying out \u201Ca selective and asymmetric reduction of public bodies\u201D with the aim of \u201Crecentralising Spain\u201D.

\u201CLiquidity and budget\u201D go together

Mas-Colell remarked that the conditions imposed by the Spanish Government to access the liquidity tools (the FLA) are to meet the deficit target unilaterally imposed by the same Spanish Executive. \u201CLiquidity and budget\u201D go together, he stated. Therefore, he stated that \u201Cit would be useless\u201D to draft a budget with a 2% deficit, \u201Cif nobody gives us credit to finance such a deficit\u201D and with the Spanish Treasury as the only source for liquidity. Mas-Colell once again asked the Spanish Government to reach an agreement in order \u201Cto send a reassuring message to Europe\u201D. The Catalan Finance Minister suggested continuing to implement austerity measures and to carry on with fiscal consolidation, but at a slower pace. Mas-Colell proposed \u201Ca soft adjustment\u201D of 0.5% of Catalonia\u2019s GDP to be implemented each year in order to reach a 0% deficit in four- years\u2019 time, which would \u201Cnot damage\u201D public services.

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  • Andreu Mas-Colell before delivering his speech on Monday (by J. R. Torné)

  • Andreu Mas-Colell before delivering his speech on Monday (by J. R. Torné)