The Catalan Government posts a 2% deficit for 2012, correcting the previous preliminary figure

A month ago, the Catalan Government issued a preliminary deficit figure for last year of 2.3%. Now, the Catalan Finance Minister, Andreu Mas-Colell, has corrected this and issued “a more precise figure, although not definitive yet”, which represents having undertaken an adjustment of €3.3 billion in a single year. The Catalan Government was supposed to meet a deficit target of 1.5% in 2012, a figure imposed by the Spanish Executive and considered too strict by Mas-Colell, since it is not proportional to the Catalan Executive’s share of public spending. For 2013, the Spanish Government is imposing an even stricter 0.7% deficit target. Mas-Colell has been repeating that it is “irrational” and needs to be changed.


February 21, 2013 10:36 PM

Barcelona (ACN).- On Thursday the Catalan Finance Minister, Andreu Mas-Colell, issued a new deficit figure, which is “more precise” than the preliminary one published on the 22nd of January. According to more accurate calculations, the Catalan Government ended 2012 with a 2% deficit, instead of the 2.3% announced a month ago. However, this data “is not definitive yet”, announced Mas-Colell. Therefore, with the new data, the Catalan Government is closer to the 1.5% deficit target unilaterally imposed by the Spanish Government for last year. Ending 2012 with a 2% deficit means that the Catalan Executive undertook a public deficit reduction of some €3.3 billion, carried out in a single year. Before the Catalan Parliament, Mas-Colell – who is one of the world’s most renowned mathematical economists as former Harvard and Berkley professor – insisted on the need to modify the deficit targets for 2013, as they are “irrational” and they are not in line with the Budget Stability Law approved by the Spanish Parliament. Furthermore, he stated that he does “not accept” the 0.7% deficit target imposed by the Spanish Government for 2013. Mas-Colell warned that such a strict deficit objective would oblige him to design a “monstrous” budget for 2013, partially dismantling public healthcare, education and social policies, as these are exclusively managed and funded by the Autonomous Communities. Therefore, if he is to design a realistic budget that does not cause the basic public services to collapse in the middle of an economic recession, Mas-Colell warned that meeting the 0.7% “will not be possible”. For all these reasons, Catalonia’s Finance Minister believes that if Brussels allows Spain to meet a deficit target higher than the 4.5% already allowed, part of this flexibility should be given to the Autonomous Communities and their deficit objective would therefore be way higher than 0.7%. Furthermore, Mas-Colell explained that the current 0.7% target is not in line with Spain’s Budget Stability Law, as it will mean that the Autonomous Communities will have a structural budget surplus by 2014, which totally does not make sense in the current context of economic recession. Furthermore, it obliges the Autonomous Communities to have a structural budget surplus 6 years earlier than the limit set by the law.

Catalonia demands a “fair and loyal” distribution of the deficit targets within Spain

Mas-Colell is asking for a “fair and loyal” split of the deficit targets within Spain. The European Union allowed the entire Spanish public sector a 4.5% deficit target in 2013. The Spanish Government internally distributed this target among the different government levels and, despite only managing 50% of Spain’s public spending, it kept 85% of the deficit allowed by Brussels for itself. This means that the Spanish Government unilaterally decided it had to meet a 3.8% deficit target and that the Autonomous Communities had to meet a 0.7%, a 15% of the deficit allowed. The Autonomous Communities manage 36% of Spain’s entire public spending and they run and fund the public healthcare and education systems, as well as social policies. In addition, the Catalan Executive – which is called Generalitat – proportionally manages a higher share of public spending since it manages more powers than the rest, such as prisons and police.

If Spain has to meet a 4.5% deficit target, Catalonia should meet an objective of 1.6%

According to Mas-Colell, with the current 4.5% deficit allowed to the whole of Spain, the deficit targets for the Autonomous Communities should be 1.6% and not 0.7% as decided by Mariano Rajoy’s cabinet. Following the same logic, while Spain as a whole was allowed a 6.3% deficit target in 2012, the Autonomous Communities should have been allowed a 2.3% target and not 1.5%. Therefore, if this had been allowed, the Generalitat, with its 2% deficit last year, would have met the target.

Furthermore, if the whole of Spain has to meet a 4.5% deficit target and the Autonomous Communities a 1.6% objective, it means that the Spanish Government’s target would shrink from the current 3.8% to 2.3%, 1.5 percentage points less.

Mas-Colell asks for “mutual loyalty”

The Catalan Finance Minister has been insisting that the different government levels have to participate in “a proportionate and mutually loyal” way towards controlling the public deficit and balancing public finances. In this vein, he has criticised the Spanish Government’s continuous failure to honour payments which are obliged by law. For instance, he denounced the fact that the Spanish Government has not included in its budget the €970 million corresponding to an element of the Catalan Government’s funding scheme that Rajoy’s cabinet has decided to ignore despite it having been approved by the Spanish Parliament. The €970 million amount is the result of a calculation based on a percentage from the Spanish Government’s total spending. Therefore the budget reduction is no excuse to not paying the Generalitat this amount. In a better economic context without budget reduction, the €970 million amount would be higher since it is the result of applying a percentage.

In addition, Mas-Colell complained about the VAT and Revenue Tax increases approved by the Spanish Government, since none of the additional revenue goes to the Autonomous Communities. On top of this, the VAT increase means that the Catalan Government had an additional expenditure of €66 million in 2012, since it has to pay more taxes to the Spanish Government. Therefore this money transfer makes the Catalan deficit increase while that of the Spanish Executive decreases.

Furthermore, the Spanish Government has restricted the Autonomous Communities’ access to private credit in the international financial markets and made them dependent on its loans through the Liquidity Fund (FLA). Since the Spanish Government did not transfer part of the loan to guarantee the Generalitat’s liquidity on time, the Catalan Government prioritised paying salaries and decided to pay the Social Security contributions of its workers late, as Social Security is managed by the Spanish Executive. However, Madrid decided to impose a €72-million fine for the delay, an issue which Mas-Colell reminded the Parliament of on Thursday. In addition, the Catalan Finance Minister noted that the Spanish Government is putting obstacles in front of any measures approved by the Catalan Executive to increase its own revenue and decrease spending, including the drug prescription fee, the new judicial fees and the tax on bank deposits. On top of this, the Spanish Government decided to allocate less money to programmes and services managed by the Generalitat, a reduction of €713 million in 2012, which has obliged Barcelona to make an additional effort to compensate for the lack of money from Madrid. Finally, Mas-Colell also reminded the Catalan Parliament that the measures adopted by the Spanish Government that were supposed to save €1 billion in 2012 for the Catalan healthcare and education systems, were totally insufficient and only saved €134 million.