Yes to a new fiscal pact for Catalonia

Catalan Parliament approved on Wednesday the proposal for a new fiscal pact for Catalonia by an overall majority. The proposal defends the creation of an independent tax agency with powers to raise and manage all taxes in Catalonia. According to the Catalan President, Artur Mas, it involves starting a “difficult” negotiation with the government of Spain but it was either “now or never”. If achieved, this new fiscal arrangement would be similar to the one enjoyed by the Basque Country, that collects its own taxes and has been able to keep its debt under control. Therefore, it could help Catalonia getting out of the crisis. Currently, out of the all the territories, Catalonia is ranked third for the amount it pays in taxes, but is ranked tenth for the amount it receives in return. The new arrangement would see Catalonia leaving the common system established by the Organic Law on the Financing of the Autonomous Communities (LOFCA) and establishing bilateral fiscal relationships with Spain.

Laura Pous / David Tuxworth

July 25, 2012 10:07 PM

Barcelona (ACN).- “Historical vote” on Wednesday in the Catalan Parliament. While the press in Catalonia and Spain were publishing that the Catalan government will probably seek financing from the Regional Liquidity Fund – describing it as a ‘bail-out’ (a word which the executive refuses to accept), an overall majority of the Catalan MPs gave their answer to Catalonia’s financial problems: a new fiscal pact with Spain. The agreement would see the creation of a completely independent tax agency in Catalonia, able to collect and manage its own taxes.

The majority was achieved after the positive votes of the ruling party, Convergència i Unió (CiU), as well as the independence party Esquerra Republicana (ERC), the Greens of ICV-EUiA and MP Joan Laporta. The Catalan Socialists (PSC) abstained because they do not agree that the tax agency should be independent from the Spanish pot. However, one of its MPs, Ernest Maragall, voted in favour of the independent tax agency, therefore rebelling against the party line. The People’s Party (PP), Ciutadans (C’s) and Solidaritat (SI) voted against.

According to the Catalan President, Artur Mas, the new fiscal pact involves starting a “difficult” negotiation with the government of Spain but the time was “now or never – and never is not an option”. Mas argued that at the peak of the economic crisis, it was more critical than ever to defend the need for a new and radical change to the fiscal arrangements between Catalonia and Spain. The Catalan president said it’s “nonsense” that out of all the territories, Catalonia is ranked third for the amount it pays in taxes to Spain, but then ranked tenth for the amount it receives in return. He added it’s “nonsense” to “hurt those territories with the most competitive productive economical model” when what is needed is to “boost them to get out of the crisis”.

“We are not asking Spain to make us a donation but to treat us fairly”, said Artur Mas in his speech to Parliament. According to Mas, if Catalonia wasn’t paying 9% of its GDP every year to the Spanish treasury, it wouldn’t be suffering its current financial difficulties. “With only half of that money our deficit would be 0 and we would still have the funds to avoid the cuts that we’re currently implementing”, he said. Mas said he wants Catalonia “to pay bilaterally to Spain according to the powers that Spain retains” (such as Defence, for example) and an amount for “solidarity purposes” to pay for the services that some regions “cannot afford”. This solidarity, he warned, cannot continue as it works now: when Catalonia gets ranked below several of the regions it is actually subsidising.

In light of reports and speculation about whether Catalonia will participate in the Regional Liquidity Fund, Mas said the government “has the right” to do so because Catalans “pay taxes to Spain”. However, the president rejected claims that Catalonia is seeking a bail-out from Spain and said that he would never allow an “intervention” of the Catalan autonomy. The leader in Parliament of the pro-independence party ERC said it was very concerning that Catalonia was considering accessing the Liquidity Fund when it suffers a severe ‘fiscal deficit’. The idea that Catalonia ‘will be rescued with its own money’ is widespread in social networks such as Twitter and Facebook and amongst pro-independence politicians.

Difficult negotiations

The fiscal pact proposal passed on Wednesday will have to receive the approval of the Spanish government and Parliament, where there is an overall majority of the conservative People’s Party of Mariano Rajoy. The Catalan branch of the party, lead by Alicia Sánchez Camacho, voted against the plan and urged Mas to avoid starting a “confrontation” with Spain. The Spanish socialists (PSOE) are also in general against the new arrangement, although the Catalan Socialists voted in favour of some of the points of the pact.

During his speech at Parliament, Artur Mas warned that if the fiscal pact fails and no agreement can be reached with the state, there will be “consequences” and some parties will make “future proposals”. In fact, ERC urged Mas to call early elections and organize an independence referendum if Spain refuses to grant Catalonia the same system enjoyed by the Basque Country. The Catalan president noted that Rajoy’s position “will depend a lot” on the attitude of the Catalan branch of his party lead by Sánchez Camacho. However, he also admitted that neither he nor the Catalan government can guarantee that the negotiations and the strategy to acquire a new financing system will be successful.